Which liquidity indicator is more informative to market volatility? Spectrum analysis of China’s base metal futures market

•We analyze the informational effects of liquidity indicators on the volatility of China’s base metal futures market.•Trading volume is more informative in predicting the price variations of most base metal futures for all frequency horizons.•Open interest performs better in explaining innovations in the price volatility of lead and nickel futures.•The relationships between liquidity indicators and price volatility vary across frequency levels.•The coherence levels indicate that price volatility in China’s base metal futures market is more responsive to shocks in open interest. By applying the frequency domain causality test and cross-spectral coherence analysis, this study investigates the informational effects of liquidity indicators on the volatility of China’s base metal futures market from January 2016 to June 2022. We find that trading volume is more informative in economically explaining the price variations of most base metal futures for all frequency horizons, while open interest is more informative to Granger-cause economic innovations in the market volatility of the lead and nickel futures markets both in the short and long run. The coherence levels between the underlying frequency components for open interest are found to be greater than those for trading volume, suggesting that price volatility in China’s base metal futures market would be more responsive to shocks in open interest.