Information Content of Trading Activity in Precious Metals Futures Markets

摘要

This study examines the predictive power of trading activity for returns in precious metals futures markets. Based on a Markov switching model, two market regimes are distinguished: bull markets that are characterized by rising prices and a low return volatility and bear markets that are associated with negative mean returns and a high return variability. There is robust evidence of significant Granger-causal effects from trading activity to returns in bull and bear markets that are not detected by models without regime switching. Moreover, the relationship between trading activity and subsequent returns is often asymmetric in different market regimes. (c) 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:421-456, 2016