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Tracking speculative trading

Author

Listed:
  • Boos, Dominik
  • Grob, Linus

Abstract

Managed futures funds are predominantly trend-followers. By analyzing positioning data, we provide novel evidence for this claim and estimate signals applied by these funds. We write trend-followers aggregate position as a weighted sum of past daily returns and use a generalized ridge regression for regularization and parameter estimation. This procedure prevents overfitting but remains flexible enough to capture various patterns. For the 23 commodities considered, trend-following can explain speculators’ position changes with an average R2 of more than 40%. Finally, we document that producers act as contrarians in a way that closely mirrors the behavior of momentum traders.

Suggested Citation

  • Boos, Dominik & Grob, Linus, 2023. "Tracking speculative trading," Journal of Financial Markets, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finmar:v:64:y:2023:i:c:s1386418122000635
    DOI: 10.1016/j.finmar.2022.100774
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    More about this item

    Keywords

    Trend-following; Momentum; Commodity futures market; Commitments of traders; Hedge funds; Ridge regression;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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