The impact of trader type on the futures volatility-volume relation

We examine the volatility-volume relation in futures markets using volume d ata categorized by type of trader. We find that the positive volatility-vol ume relation is driven by the general public, a group of traders who are di stant from the trading floor and therefore without precise information on o rder flow. Clearing members and floor traders who observe order flow often decrease volatility. Our findings are consistent with Shalen's (1993) hypot hesis that uninformed traders who cannot differentiate liquidity demand fro m fundamental value change increase volatility.