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Returns to Individual Traders of Futures: Aggregate Results


  • Hartzmark, Michael L


By means of a data set previously unavailable for academic research, actual trading histories of individual futures traders are examined. With this more detailed data, the author is able to (1) test the risk/return hypothesis directly; (2) include a much larger segment of the market than before; and (3) use actual instead of hypothetical t rading strategies. It is shown that the commercial (hedging) traders are most profitable, while noncommercial (speculative) traders earn n egative or zero profits. Because speculators are not receiving reward s for the risks they willingly absorb, the theory of normal backwarda tion and its extension can be rejected. Copyright 1987 by University of Chicago Press.

Suggested Citation

  • Hartzmark, Michael L, 1987. "Returns to Individual Traders of Futures: Aggregate Results," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1292-1306, December.
  • Handle: RePEc:ucp:jpolec:v:95:y:1987:i:6:p:1292-1306

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    References listed on IDEAS

    1. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    2. McCafferty, Stephen & Driskill, Robert, 1980. "Problems of Existence and Uniqueness in Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 48(5), pages 1313-1317, July.
    3. Stephen W. Salant, 1974. "Profitable speculation, price stability, and welfare," International Finance Discussion Papers 54, Board of Governors of the Federal Reserve System (U.S.).
    4. Danthine, Jean-Pierre, 1978. "Information, futures prices, and stabilizing speculation," Journal of Economic Theory, Elsevier, vol. 17(1), pages 79-98, February.
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    Cited by:

    1. Carl R. Zulauf & Scott H. Irwin, 1998. "Market Efficiency and Marketing to Enhance Income of Crop Producers," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 20(2), pages 308-331.
    2. Yoon, Byung-Sam & Brorsen, B. Wade, 2005. "Can Multiyear Rollover Hedging Increase Mean Returns?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 37(01), pages 65-78, April.
    3. Sykuta, Michael E., 1996. "Futures trading and supply contracting in the oil refining industry," Journal of Corporate Finance, Elsevier, vol. 2(4), pages 317-334, July.
    4. Robert Weiner, 2006. "Do Birds of a Feather Flock Together? Speculator Herding in the World Oil Market," Discussion Papers dp-06-31, Resources For the Future.
    5. Scott H. Irwin & Dwight R. Sanders, 2011. "Index Funds, Financialization, and Commodity Futures Markets," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 33(1), pages 1-31.
    6. Shafiqur Rahman & M. Shahid Ebrahim, 2005. "The Futures Pricing Puzzle," Computing in Economics and Finance 2005 35, Society for Computational Economics.
    7. Büyükşahin, Bahattin & Robe, Michel A., 2014. "Speculators, commodities and cross-market linkages," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 38-70.
    8. Henry L. Bryant & David A. Bessler & Michael S. Haigh, 2006. "Causality in futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 26(11), pages 1039-1057, November.
    9. Konstantinidi, Eirini & Skiadopoulos, George, 2011. "Are VIX futures prices predictable? An empirical investigation," International Journal of Forecasting, Elsevier, vol. 27(2), pages 543-560.
    10. Chang, Eric C. & Michael Pinegar, J. & Schachter, Barry, 1997. "Interday variations in volume, variance and participation of large speculators," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 797-810, June.
    11. Kocagil, Ahmet E. & Topyan, Kudret, 1997. "An empirical note on demand for speculation and futures risk premium: A Kalman Filter application," Review of Financial Economics, Elsevier, vol. 6(1), pages 77-93.
    12. Changyun Wang, 2003. "The behavior and performance of major types of futures traders," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(1), pages 1-31, January.
    13. W. Bruce Canoles & Sarahelen Thompson & Scott Irwin & Virginia Grace France, 1998. "An analysis of the profiles and motivations of habitual commodity speculators," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 18(7), pages 765-801, October.
    14. Jonathan Kearns & Phil Manners, 2004. "The Profitability of Speculators in Currency Futures Markets," RBA Research Discussion Papers rdp2004-07, Reserve Bank of Australia.
    15. Ing-Haw Cheng & Wei Xiong, 2014. "Financialization of Commodity Markets," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 419-441, December.
    16. J. Frank & P. Garcia, 2009. "Time-varying risk premium: further evidence in agricultural futures markets," Applied Economics, Taylor & Francis Journals, vol. 41(6), pages 715-725.
    17. Goulas, Lambros & Skiadopoulos, George, 2012. "Are freight futures markets efficient? Evidence from IMAREX," International Journal of Forecasting, Elsevier, vol. 28(3), pages 644-659.
    18. Ing-Haw Cheng & Wei Xiong, 2013. "The Financialization of Commodity Markets," NBER Working Papers 19642, National Bureau of Economic Research, Inc.
    19. James D. Hamilton & Jing Cynthia Wu, 2015. "Effects Of Index‐Fund Investing On Commodity Futures Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 187-205, February.
    20. Brunetti, Celso & Reiffen, David, 2014. "Commodity index trading and hedging costs," Journal of Financial Markets, Elsevier, vol. 21(C), pages 153-180.
    21. Aaron Tornell & Chunming Yuan, 2012. "Speculation and hedging in the currency futures markets: Are they informative to the spot exchange rates," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 32(2), pages 122-151, February.
    22. Sumner, Scott, 2015. "Nominal GDP futures targeting," Journal of Financial Stability, Elsevier, vol. 17(C), pages 65-75.
    23. Adjemian, Michael K. & Garcia, Philip & Irwin, Scott & Smith, Aaron, 2013. "Non-Convergence in Domestic Commodity Futures Markets: Causes, Consequences, and Remedies," Economic Information Bulletin 155381, United States Department of Agriculture, Economic Research Service.

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