The intraday relationship between volume and volatility in LIFFE futures markets

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Abstract
This paper examines the intraday behaviour of five-minute FTSE-100, Short Sterling and Long Gilt LIFFE futures returns volatility and volume. The intraday patterns identified exhibit a U-shape, significantly affected by UK and US macroeconomic news releases. Evidence from estimation of a GMM system for volatility and volume supports a significant positive and contemporaneous correlation between volatility and volume, although lagged volume is also significant in the volatility equation. Further, there is strong evidence of bi-directional causality on the basis of Granger-causality testing. These results are found to be robust to the adjustment of volatility and volume for macroeconomic news effects, and in the case of the Granger-causality tests to a variety of temporal horizons.