This study focuses on futures trading activities for hedgers and speculators and examines the dynamic relationship with the timing and source of information arrival, such as the trading-hours and non-trading-hours volatility. Considering and comparing both the US and Hong Kong markets can provide us with valuable insights of such relationship in markets of differing degrees of sophistication. Volatility leading futures trading for both hedgers in the U.S. market and speculators in the Hong Kong market is found to stabilize the market whereas futures trading leading volatility destabilize the market under investigation for different information and trader-types. We further attempt to analyze hedgers’ and speculators’ activities separately across market conditions in our analyses, providing examinations and comparisons of hedgers’ hedging / arbitrage activity and speculators’ speculative activity based on the argument of Harris (1989). As a somewhat surprising result, our findings present that hedgers may take either hedging or speculative (arbitrage) activities whereas speculators purely take speculative activities. Hence, our examinations of volatility and decompositions of futures trading activities offer further insights into the relation of volume and volatility about markets of differing degrees of sophistication under changing sentiments for participants.
Key words: volatility, futures trading, market conditions, and participants sentiments