Abstract
Previous research on liquidity has studied the relationships between liquidity, trading activity and volatility, mostly with data from US Treasury securities, stocks and foreign exchange spot markets. Liquidity in futures markets, especially electricity futures, has received little attention. However, liquidity in futures is expected to behave differently to that in spot markets because of the unique asymmetries in futures markets. Liquidity in electricity markets is of interest in countries where these markets are being deregulated. This study estimates these relationships for the Palo Verde electricity futures contract. The results show positive relations between all three pairs of key variables.