Futures Market Volatility? What Has Changed?
Journal of Futures Markets, forthcoming, 2015

Nicolas P.B. Bollen and Robert E. Whaley

ABSTRACT
The evolution of trading practices in futures markets, including the growth of high frequency trading, has raised concerns about deterioration of market quality. This study investigates whether excess volatility in futures contract returns, as an encompassing gauge of market quality, has changed over time. Daily measures of realized volatility are computed using five-minute returns of fifteen electronically-traded futures contracts. Two benchmarks are used to control for changes in the rate of information flow: indexes of option implied volatility and volatility estimates computed over longer horizons. Realized volatility has not changed relative to the benchmarks, indicating that changes in trading practices have not led to a deterioration of market quality.