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On the predictive role of large futures trades for S&P500 index returns: An analysis of COT data as an informative trading signal

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  • Chen, Haojun
  • Maher, Daniela

Abstract

This study examines the information role of large S&P500 futures trades (commercial, noncommercial, dealers, asset managers, and hedge funds) in shaping index returns. Using consolidated data across both standard and E-mini futures contracts, we find that commercial firms’ net trading level appears positively correlated with future index returns but the relationship is not stable across time. Based on more recent data, amongst specialist traders, hedge funds appear superior in terms of access to information and/or trading ability but this advantage is only preserved at high frequency. Therefore, the current weekly Commitment of Traders (COT) report – published with a 3-day delay – prevents timely public access to this type of information. Also, trading signals generated by a popular, position-based sentiment index do not produce significant average returns. Overall, this calls into question the reliability of COT-based trading signals used by market professionals.

Suggested Citation

  • Chen, Haojun & Maher, Daniela, 2013. "On the predictive role of large futures trades for S&P500 index returns: An analysis of COT data as an informative trading signal," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 177-201.
    • Handle: RePEc:eee:intfin:v:27:y:2013:i:c:p:177-201
    DOI: 10.1016/j.intfin.2013.09.004
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    Cited by:

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    4. Lai, Ya-Wen & Lin, Chiou-Fa & Tang, Mei-Ling, 2017. "Mispricing and trader positions in the S&P 500 index futures market," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 250-265.
    5. Paweł Jakubowski & Robert Ślepaczuk & Franciszek Windorbski, 2023. "REnsembling ARIMAX Model in Algorithmic Investment Strategies on Commodities Market," Working Papers 2023-20, Faculty of Economic Sciences, University of Warsaw.

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    More about this item

    Keywords

    Institutional traders; S&P500 futures; Open interest; COT report; Market efficiency;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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