This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Noise Traders, Market Sentiment, and Futures Price Behavior

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Dwight R. Sanders (Darden Restaurants)
Scott H. Irwin (The Ohio State University)
Raymond M. Leuthold (University of Illinois, Urbana-Champaign)

Additional information is available for the following registered author(s):

Abstract

The noise trader sentiment model of De Long, Shleifer, Summers, and Waldmann (1990a) is applied to futures markets. The theoretical results predict that overly optimistic (pessimistic) noise traders result in market prices that are greater (less) than fundamental value. Thus, returns can be predicted using the level of noise trader sentiment. The null rational expectations hypothesis is tested against the noise trader alternative using a commercial market sentiment index as a proxy for noise trader sentiment. Fama-MacBeth cross-sectional regressions test if noise traders create a systematic bias in futures prices. The time- series predictability of futures returns using known sentiment levels is tested in a Cumby-Modest market timing framework and a more general causality specification. The empirical results lead to the following conclusions. First, there is no evidence that noise trader sentiment creates a systematic bias in futures prices. Second, predictable market returns using noise trader sentiment is not characteristic of futures markets in general. Third, futures market returns at weekly intervals are characterized by low-order positive autocorrelation with relatively small autoregressive parameters. In those instances where there is evidence of noise trader effects, it is at best limited to isolated markets and particular specifications.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://129.3.20.41/eps/fin/papers/9707/9707001.pdf
File Format: application/pdf
File Function:
Download Restriction: no
File URL: http://129.3.20.41/eps/fin/papers/9707/9707001.html
File Format: text/html
File Function:
Download Restriction: no
File URL: http://129.3.20.41/eps/fin/papers/9707/9707001.ps.gz
File Format: application/postscript
File Function:
Download Restriction: no

Publisher Info
Paper provided by EconWPA in its series Finance with number 9707001.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 40 pages
Date of creation: 21 Jul 1997
Date of revision:
Handle: RePEc:wpa:wuwpfi:9707001

Note: Type of Document - Word Perfect 6/7/8; prepared on PC; to print on HP Laser Jet; pages: 40. Office for Futures and Options Research (OFOR) at the University of Illinois, Urbana-Champaign. Working Paper 97-02. For a complete list of OFOR working papers see
Contact details of provider:
Web page: http://129.3.20.41

For technical questions regarding this item, or to correct its listing, contact: (EconWPA).

Related research
Keywords: Noise Traders; Sentiment; Forecast Bias; Causality;

Other versions of this item:

Find related papers by JEL classification:
G - Financial Economics
G0 - Financial Economics - - General
G1 - Financial Economics - - General Financial Markets

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July. [Downloadable!] (restricted)
  2. Palomino, Frederic, 1996. " Noise Trading in Small Markets," Journal of Finance, American Finance Association, vol. 51(4), pages 1537-50, September. [Downloadable!] (restricted)
  3. 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:
  4. 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)
    Other versions:
  5. Laura E. Kodres, 1994. "The existence and impact of destabilizing positive feedback traders: evidence from the S&P 500 Index futures market," Finance and Economics Discussion Series 94-9, Board of Governors of the Federal Reserve System (U.S.).
  6. Virginia Grace France & Laura Kodres & James T. Moser, 1994. "A review of regulatory mechanisms to control the volatility of prices," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 15-28. [Downloadable!]
  7. Cumby, Robert E. & Modest, David M., 1987. "Testing for market timing ability : A framework for forecast evaluation," Journal of Financial Economics, Elsevier, vol. 19(1), pages 169-189, September. [Downloadable!] (restricted)
  8. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June. [Downloadable!] (restricted)
  9. 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)
    Other versions:
  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!]
    Other versions:
  11. Stein, Jerome L, 1981. "Speculative Price: Economic Welfare and the Idiot of Chance," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 223-32, May. [Downloadable!] (restricted)
  12. Bessembinder, Hendrik, 1992. "Systematic Risk, Hedging Pressure, and Risk Premiums in Futures Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 5(4), pages 637-67. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Changyun Wang, 2003. "Investor sentiment, market timing, and futures returns," Applied Financial Economics, Taylor and Francis Journals, vol. 13(12), pages 871-878, December. [Downloadable!] (restricted)
Statistics
Access and download statistics

Did you know? LogEc provides statistical analysis about downloads from this service (and others).

This page was last updated on 2010-2-5.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.