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Trading Volume, Open Interest, and Maturity in Gold, Oil, and Bitcoin Futures

Article arXiv papers · Author: Toshiko Matsui et al.
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Summary

The paper studies what drives futures price volatility and basis for gold, oil, and bitcoin using a contract-by-contract approach. It analyzes daily spot and futures prices alongside maturity, trading volume, and open interest over the period from December 2017 to November 2021. The approach builds on earlier work examining crude oil futures volatility.

The reported results associate higher trading volume with greater volatility across all three assets, while open interest may have a negative influence when its effect is significant. Maturity is positively associated with volatility for bitcoin and oil. For basis, maturity has a positive effect for bitcoin and gold, consistent with convergence toward zero as contracts approach expiration; oil's basis responds in both directions. The excerpt gives no model specifications, effect sizes, or robustness checks, and its stated findings concern the studied sample period, so it does not establish that these relationships persist in other markets or periods.

Key ideas

  • The study analyzes futures volatility and basis for gold, oil, and bitcoin at the contract level.
  • Trading volume has a positive, significant association with volatility in all three markets.
  • Open interest may reduce volatility when its estimated influence is significant.
  • Maturity is positively associated with volatility for bitcoin and oil.
  • Maturity affects bitcoin and gold basis positively, while the reported oil relationship runs in both directions.

Tags

FuturesCommoditiesCryptoVolatilityMarket microstructure
Full text
# On the Dynamics of Solid, Liquid and Digital Gold Futures


# On the Dynamics of Solid, Liquid and Digital Gold Futures









This paper examines the determinants of the volatility of futures prices and basis for three commodities: gold, oil and bitcoin -- often dubbed solid, liquid and digital gold -- by using contract-by-contract analysis which has been previously applied to crude oil futures volatility investigations. By extracting the spot and futures daily prices as well as the maturity, trading volume and open interest data for the three assets from 18th December 2017 to 30th November 2021, we find a positive and significant role for trading volume and a possible negative influence of open interest, when significant, in shaping the volatility in all three assets, supporting earlier findings in the context of oil futures. Additionally, we find maturity has a relatively positive significance for bitcoin and oil futures price volatility. Furthermore, our analysis demonstrates that maturity affects the basis of bitcoin and gold positively -- confirming the general theory that the basis converges to zero as maturity nears for bitcoin and gold -- while oil is affected in both directions.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.