It is widely acknowledged in the financial literature that trading in asset markets is mainly induced by the arrival of new information. However, the contemporaneous and dynamic empirical relationship beween volume and returns in futures data, with attendant implications for futures market microstructure, remains largely unresolved due to the inconclusive nature of the extant empirical literature. The present paper examines these relationsips from the perspective of competing hypotheses in the context of data for three LIFFE futures contracts over a variety of intra-day frequencies. Results suggest the existence of not only a positive and contemporaneous relationship between absolute returns and volume, but also a bidirectional causal relationship for most series and frequencies, consistent with the sequential arrival of information hypothesis, but with different speeds of information dissemination across markets. Inspection of the relationship between volume and actual returns further reveals only limited evidence of a statistically significant contemporaneous or dynamic relation, but consistent with an inverse relationship between informational asymmetry and market efficiency.
