ABSTRACT
This chapter considers the pairwise relationships between three measures of trading activity over a short period of time, e.g. one day, for a particular futures contract. The three measures are price volatility, the maturity of the futures contract, i.e. the length of time remaining until delivery of the contract, and the volume of trading in the futures contract. For each of the three pairwise relationships, the theoretical predictions about the nature of the relationship are examined, and then the empirical studies testing of these theories are considered. Knowledge of the negative (or positive) relationship between volatility and maturity has a number of important implications. The desired margin size is a positive function of the volatility of futures prices. The chapter summarises the empirical studies which have examined the relationship for index futures, since the relationship between maturity and price volatility cannot be resolved theoretically.
