Volume and Volatility Relationship under the Commodities Price-Guaranteed Policy

This paper shows that although a price-guaranteed policy in spot markets decreases price volatility of some futures contracts in Thailand’s futures exchange, liquid futures contracts still show liquidity-driven trading. This supports the contemporaneous positive relationship between volume and price volatility or the mixtures of the distribution model. This study reveals the bi-directional causality for some liquid rubber futures contracts that supports the sequential arrival of information model, while the unidirectional causality is found for white rice futures contracts. Regulators in emerging futures markets should focus on volume-encouraging activities because volume itself has some certain degrees of information for investors. Illiquid futures contracts might result from high trading costs, not from lower price volatility under the commodities price-guaranteed policy