Uncovering the complex asymmetric relationship between trading activity and commodity futures price: Evidenced from QNARDL study

• Published in: Resources policy 2021-12, Vol.74, p.102277, Article 102277
• Main Authors: Jena, Sangram Keshari, Lahiani, Amine, Tiwari, Aviral Kumar, Roubaud, David
• Format: Article
• Language: English
• Subjects: Asymmetry; Commodities; Commodity futures; Copper; Crude; Diversification; Economics and Finance; Futures; Gold; Humanities and Social Sciences; Markets; Policy making; Prices; Pricing; Quantile ARDL and NARDL; Risk management; Strategy; Trading; Volume and open interest
• ISSN: 0301-4207; 1873-7641
• DOI: 10.1016/j.resourpol.2021.102277

This study cracks the multidimensional asymmetric relationship between trading activity (volume and open interest) and commodity futures prices to analyze the short-term dynamics and long-term cointegrating relationship across different state of the market considering both positive and negative changes in trading activity using a novel Quantile Non-linear Autoregressive Distributed Lag (QNARDL) approach. First, the asymmetric price effect is found in short- and long-run of volume and open interest. Second, the asymmetric price effect due to positive and negative changes in open interest (volume) is found in the short-run (long-run) for copper (gold and crude) futures. Third, distributional asymmetry is found in the above two price effects on all three commodity futures implying that the price effect changes with changes in market conditions such bearish, bullish, and normal. Our findings will help the portfolio managers for effective investment and diversification decision, traders for better trading strategy, hedgers for better risk management strategy, and regulators and concerned exchange for effective policy making in varied market conditions. •Asymmetric relationship between trading activity and commodity futures returns is examined in India.•Nonlinear cointegration approaches on daily data over 2003–2020.•Volume effect is asymmetric in long-run for gold and crude futures.•Short-run asymmetric effect of open interest on price for copper.•Trading activity exherts a distributional asymmetric impact of price reflecting bearish, bullish and normal market conditions.