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

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