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Noise Trader Demand in Futures Markets

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Author Info
Dwight R. Sanders (The Pillsbury Company)
Scott H. Irwin (The Ohio State University)
Raymond M. Leuthold

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Abstract

Theoretical noise trader models suggest that uninformed traders can impact market prices. However, these models' conclusions depend crucially on the assumed specification for noise trader demand. This research seeks to empirically determine the appropriate demand specification for uninformed traders. Using commercial market sentiment indices as proxies for noise trader demand, Granger causality models are estimated to examine the linear linkages between sentiment and futures returns. The models strongly suggest that noise traders are positive feedback traders (i.e., extrapolative expectations) with relatively long memories.

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Publisher Info
Paper provided by EconWPA in its series Finance with number 9609001.

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Length: 31 pages
Date of creation: 06 Sep 1996
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Handle: RePEc:wpa:wuwpfi:9609001

Note: Type of Document - Word Perfect 6.1; prepared on PC; to print on HP Laser Jet; pages: 31; figures: included. Office for Futures and Options Research (OFOR) at the University of Illinois, Urbana-Champaign. Working Paper 96-02. For a complete list of OFOR working papers see
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Related research
Keywords: Noise Trader; Market Sentiment; Causality;

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Find related papers by JEL classification:
Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

References listed on IDEAS
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  1. Brennan, M J, 1995. "The Individual Investor," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 18(1), pages 59-74, Spring.
  2. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-95, June. [Downloadable!] (restricted)
    Other versions:
  3. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August. [Downloadable!] (restricted)
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  4. Andrew C. Harvey, 1990. "The Econometric Analysis of Time Series, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026208189x, December.
  5. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1990. "Speculative Dynamics and the Role of Feedback Traders," American Economic Review, American Economic Association, vol. 80(2), pages 63-68, May. [Downloadable!] (restricted)
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  6. Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 19-33, Spring. [Downloadable!] (restricted)
  7. De Long, J Bradford, et al, 1989. " The Size and Incidence of the Losses from Noise Trading," Journal of Finance, American Finance Association, vol. 44(3), pages 681-96, July. [Downloadable!] (restricted)
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  8. Thornton, Daniel L & Batten, Dallas S, 1985. "Lag-Length Selection and Tests of Granger Causality between Money and Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 164-78, May. [Downloadable!] (restricted)
  9. De Bondt, Werner P. M., 1993. "Betting on trends: Intuitive forecasts of financial risk and return," International Journal of Forecasting, Elsevier, vol. 9(3), pages 355-371, November. [Downloadable!] (restricted)
  10. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann,, . "The Survival of Noise Traders in Financial Markets," J. Bradford De Long's Working Papers _123, University of California at Berkeley, Economics Department. [Downloadable!]
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  11. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1991. "Speculative Dynamics," Review of Economic Studies, Blackwell Publishing, vol. 58(3), pages 529-46, May. [Downloadable!] (restricted)
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Cited by:
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  1. Czarnitzki, Dirk & Stadtmann, Georg, 2000. "The behaviour of noise traders : empirical evidence on purchases of business magazines," ZEW Discussion Papers 00-65, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  2. Klumpp, Joni M. & Brorsen, B. Wade & Anderson, Kim B., 2005. "The Impact of Marketing Strategy Information on the Producer's Selling Decision," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19036, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. [Downloadable!]
  3. Brorsen, B. Wade & Anderson, Kim B., 2002. "Actual Farmer Market Timing," 2002 Conference, April 22-23, 2002, St. Louis, Missouri 19065, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. [Downloadable!]
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