The Relationship between Information Flow and Energy Futures Volatility

We investigate the relationship between volatility and volume in five energy commodity futures contracts traded at the NYMEX for the period 1992 to 2006. We find that conditional volatility shows a high response to large information shocks and exhibits a great sensitivity to total expected and unexpected volume. We note a negative relationship between expected volume and volatility in several contracts which may be attributed to the relative inefficiency about information dissemination and trading of those contracts. Our findings are consistent with the Sequential Information Arrival Hypothesis and show support for the Difference in Opinion theory