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臺大管理論叢
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26
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participants. Pan et al. (2003) suggest that an increase in price volatility induces both hedgers
and speculators to engage in more futures trading. In particular, when spot price volatility
goes up, trading demand for hedgers, not for speculators, will increase significantly. Chang
et al. (2000) assert that increasing spot volatility tends to increase the demand for hedging
more than the demand for speculation. If open interest indeed reflects hedging demand, it
would rise and fall with the spot volatility, which stimulate hedging transactions. This leads
our testable implication (3) as follows:
Testable implication (3):
Open interest is positively associated with spot volatility.
Chang et al. (2000) further suggest that if volatility shock arises during the day, hedgers
will adjust upward their expected volatility for the next term. Given the expected volatility at
the beginning of the day, the unexpected volatility shock will drive further portfolio
adjustment and additional hedging demand. This implies that the increase in unexpected
volatility should correspond to higher level of open interest, reflecting the increase in
hedging demand. Our testable implication (4) thus is constructed as follows:
Testable implication (4):
Open interest rises with increased unexpected spot volatility.
2.3 Divergences in Traders’ Opinions
Hypothesis 3: Open interest represents the cross-sectional divergence in opinions
regarding the future value of the underlying asset.
Previous literature has long viewed volume as the outcome of differences in traders’
opinions. Volume increase significantly when investors hold diverged expectations (Varian,
1985) or interpret the available information differently (Harris and Raviv, 1993; Shalen,
1993). Bessembinder et al. (1996) emphasize that open interest also varies with the
divergence of traders’ opinions. They argue that the difference of opinion about the future
price could induce trading, particular the open-position transactions that increases open
interest. When traders are divergence in their opinions, those who anticipate the price to rise
rush to open-buy transactions (open new positions to long) while those who anticipate the
price to fall engage in open-sell transactions (open new positions to short). Together their
transactions increase open interest and volume simultaneously. As a result, whenever the
increment in open interest is accompanied by greater volume, the change in open interest is
likely due to the divergences of opinion.
On the other hand, when traders are less divergence in their views about future
equilibrium price, the current price will quickly move toward the equilibrium without