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The behavior and performance of major types of futures traders

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  • Wang, Changyun

Abstract

This article examines the behavior and performance of speculators and hedgers in 15 U.S. futures markets. We find that after controlling for market risk factors, speculators are contrarians, but respond positively to market sentiment. In contrast, hedgers engage in positive feedback trading and trade against market sentiment. We also find that trades of speculators (hedgers) are positively (negatively) correlated with subsequent abnormal returns; however, it does not appear that speculators possess superior forecasting power. Therefore, hedging pressure effects likely explain the negative relation between the performance of speculators and hedgers. The positive feedback trading by hedgers together with their negative performance suggests that hedgers have a destabilizing impact on futures prices.

Suggested Citation

  • Wang, Changyun, 2001. "The behavior and performance of major types of futures traders," MPRA Paper 36426, University Library of Munich, Germany, revised Jul 2002.
    • Handle: RePEc:pra:mprapa:36426
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    More about this item

    Keywords

    Trader behavior; perfromance; hedgers; speculators;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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