The informational role of open interest in futures markets

Abstract

This study examines the long-run information role of open interest in futures markets. It is found that open interest of the futures markets for storable commodities shares the same long-run information as the futures prices, but not for the nonstorable futures markets. Furthermore, the futures prices tend to drive open interest for storable commodities in the long run, but not the other way around.

Acknowledgements

Jian Yang acknowledges financial support from a Tom Slick Research Fellowship at Texas A&M University when this project was initially developed. We thank Charles Cuny and R. Brian Balyeat for their helpful comments on earlier drafts.

Notes

 Our exclusion of volume in this study follows Engle and Granger (1987, p. 274), who exclude a stationary risk premium in their cointegration analysis. It is widely recognized that futures volume is highly autocorrelated but stationary (Bessembinder and Seguin, 1993).