The relationship between open interest and price volatility

• Main Authors: Hsiao-Te Lee, 李校德
• Other Authors: Wen-Liang Hsieh
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/79756368346718238583

碩士 === 淡江大學 === 財務金融學系 === 92 === This thesis examines the empirical relationship between open interest and price volatility using the stock index futures in Taiwan future market. Open interest is used as a proxy variable of hedge level. First, the thesis investigates the relationship between open interest and price volatility. Second, the thesis investigates the relationship among open interest, expected price volatility and unexpected price volatility. The empirical result show as follows: 1.Open interest and price volatility are highly negative relationship. Open interest is the proxy variable of trading numbers and capital. When price volatility increases, investors would be less interested in futures. The relationship between open interest and price volatility suggest that open interest may reflect market depth. 2.Open interest is strongly negatively related to expected price volatility and unexpected price volatility. These show that increasing unexpected price volatility leads to higher expected price volatility, which, in turn, reduces hedging demand and open interest. The reason that investors avoid trading futures for hedging purpose in the high volatile market is because that many small investors in Taiwan may prefer to speculating when market is volatile.