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Investor sentiment, market timing, and futures returns

Author

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  • Changyun Wang

Abstract

This study examines whether actual trader position-based sentiment index is useful for predicting returns in the S&P 500 index futures market. The results show that large speculator sentiment is a price continuation indicator, whereas large hedger sentiment is a contrary indicator. Small trader sentiment hardly forecasts future market movements. Moreover, extreme large trader sentiments and the combination of extreme large trader sentiments tend to provide more reliable forecasts. These findings suggest that large speculators possess superior timing ability in the market.

Suggested Citation

  • Changyun Wang, 2003. "Investor sentiment, market timing, and futures returns," Applied Financial Economics, Taylor & Francis Journals, vol. 13(12), pages 891-898.
  • Handle: RePEc:taf:apfiec:v:13:y:2003:i:12:p:891-898
    DOI: 10.1080/0960310032000129653
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    Citations

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    Cited by:

    1. Bahloul, Walid & Bouri, Abdelfettah, 2016. "The impact of investor sentiment on returns and conditional volatility in U.S. futures markets," Journal of Multinational Financial Management, Elsevier, vol. 36(C), pages 89-102.
    2. Yu-Lun Chen & Yin-Feng Gau & Wen-Ju Liao, 2016. "Trading activities and price discovery in foreign currency futures markets," Review of Quantitative Finance and Accounting, Springer, vol. 46(4), pages 793-818, May.
    3. Ahmed Salhin & Mo Sherif & Edward Jones, 2016. "Investor Sentiment and Sector Returns," CFI Discussion Papers 1602, Centre for Finance and Investment, Heriot Watt University.
    4. Erik Theissen, 2007. "An analysis of private investors' stock market return forecasts," Applied Financial Economics, Taylor & Francis Journals, vol. 17(1), pages 35-43.
    5. Smales, Lee A., 2016. "Trading behavior in S&P 500 index futures," Review of Financial Economics, Elsevier, vol. 28(C), pages 46-55.
    6. repec:eee:reveco:v:49:y:2017:i:c:p:69-83 is not listed on IDEAS
    7. repec:wsi:serxxx:v:62:y:2017:i:04:n:s0217590817400318 is not listed on IDEAS
    8. Bahloul, Walid & Bouri, Abdelfettah, 2016. "Profitability of return and sentiment-based investment strategies in US futures markets," Research in International Business and Finance, Elsevier, vol. 36(C), pages 254-270.
    9. Chang, Ya-Kai & Chen, Yu-Lun & Chou, Robin K. & Gau, Yin-Feng, 2013. "The effectiveness of position limits: Evidence from the foreign exchange futures markets," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4501-4509.
    10. Yang, Chunpeng & Gao, Bin, 2014. "The term structure of sentiment effect in stock index futures market," The North American Journal of Economics and Finance, Elsevier, vol. 30(C), pages 171-182.
    11. Zheng, Yao, 2015. "The linkage between aggregate investor sentiment and metal futures returns: A nonlinear approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 128-142.
    12. Fagan, Stephen & Gencay, Ramazan, 2008. "Liquidity-Induced Dynamics in Futures Markets," MPRA Paper 6677, University Library of Munich, Germany.
    13. 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.
    14. Corredor, Pilar & Ferrer, Elena & Santamaria, Rafael, 2013. "Investor sentiment effect in stock markets: Stock characteristics or country-specific factors?," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 572-591.
    15. Lai, Hung-Cheng & Wang, Kuan-Min, 2014. "Relationship between the trading behavior of three institutional investors and Taiwan Stock Index futures returns," Economic Modelling, Elsevier, vol. 41(C), pages 156-165.
    16. Smales, Lee A., 2014. "News sentiment in the gold futures market," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 275-286.

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