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 relationships between volume and returns in futures data, with attendant implications for futures market microstructure, remain largely unresolved due to the inconclusive nature of the extant empirical literature. The present paper examines these relationships from the perspective of competing hypotheses in the context of data for three LIFFE futures contracts over a variety of intra-day frequencies. These results indicate not only a positive contemporaneous relationship between volume and absolute returns but also bidirectional causality for most series and frequencies, consistent with the sequential arrival of information hypothesis, but with different speeds of information dissemination across the three markets. Further examination of the contemporaneous and dynamic relationships between volume and actual returns reveals only limited evidence of any statistically significant associations implying market inefficiency, and consistent with an inverse association between informational asymmetry and market efficiency.
