Futures Market Volatility: What Has Changed?

The evolution of trading practices in futures markets, including growth of high‐frequency trading, has raised concerns about market quality. This study investigates whether excess futures return volatility, as an encompassing gauge of market quality, has changed over time. Daily measures of realized volatility are computed using 5‐minute returns of 15 electronically traded futures contracts. Two benchmarks are used to control for changes in the rate of information flow: option implied volatility and long horizon volatility estimates. Relative to the benchmarks, realized volatility has not changed, indicating that changes in trading practices have not led to a deterioration of market quality. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:426–454, 2015