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Small Traders in Currency Futures Markets Format

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Abstract

This study examines the interrelation between small traders' open interest and large hedging and speculation in the Canadian dollar, Swiss franc, British pound, and Japanese yen futures markets. The results, based on Granger-causality tests and vector autoregressive models, suggest that small traders' open interest is closely related to large speculators' open interest. Small traders and speculators tend to herd, which means that small traders are long [short] when speculators are long [short] as well. Moreover, small traders and speculators are positive feedback traders whereas hedgers are contrarians. Regarding information flows, speculators lead small traders in three of the four currency futures markets. The results therefore suggest that small traders ares mall speculators who follow the large speculators, indicating that they are less well informed than the large speculators.

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File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp278.pdf
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Bibliographic Info

Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 278.

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Length: 24
Date of creation: 01 May 2010
Date of revision:
Handle: RePEc:uts:rpaper:278

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Keywords: currency futures; small traders; speculation; hedging;

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Cited by:
  1. Liudmila G. Egorova, 2014. "The Effectiveness Of Different Trading Strategies For Price-Takers," HSE Working papers WP BRP 29/FE/2014, National Research University Higher School of Economics.

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