The Relationship Between Liquidity And Volatility—an Empirical Study Of Rice Futures

As a market economy developed to a certain extent, future market has become an important part of the modern market system. The four basic functions of future markets:price discovery, efficient allocation of resources, to avoid the risk and investment management. Liquidity and volatility are the basic properties of the future market, an important symbol of the future market. In order to enable the realization of the basic functions of the future market, the relationship between this paper future market liquidity and volatility has an important significance.This paper provides an overview of future market liquidity and volatility, the liquidity indicators are divided into four categories:market breadth and market depth, trading activity and the composite indicator. Liquidity is described from all perspectives. This paper selects indicators of volume and price changes, and introduces four methods to measure of volatility:historical volatility, EWMA, ARCH and SV. It summarizes domestic and international research on the ARCH model, mainly introduces GARCH (1,1) model and points out the applicability of the model as well as defects. Then it describes the theoretical basis of the relationship between stock market liquidity and volatility including mixed-distribution theory, the transaction theoretical model and the concept of decentralized model. Chapter â…£ empirically analyzes the price index of the Rice future market in China, after quantifying and linear regression of the liquidity and volatility, the empirical results show that there existed a linear correlation is unlikely. In this paper, the ARMA model the mobility division of expected liquidity and unexpected liquidity, the Klark the mixture distribution hypothesis, volatility correlation analysis. The conclusion is just as the MDH expected results, volatility and unexpected mobility there is a strong linear relationship. Rice future market volatility is due to the impact of unexpected liquidity.Main innovations of this paper are as following:First, this paper uses the market depth indicators to measure the mobility, while the previous studies of stock market liquidity and volatility use the volume on behalf of the liquidity, the liquidity indicators of this article has a certain representative significance. Second, the GARCH model is used in the research of future market volatility, and takes full advantage of the latest econometric results, so the empirical results are more convincing. Finally, this paper directly uses the liquidity and volatility in the linear regression analysis, liquidity is divided into the expected liquidity and unexpected liquidity and volatility according to the MDH theory. Through regression analysis, the volatility is mainly affected by the unexpected mobility, and is unrelated to the expected mobility.