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Managed futures, positive feedback trading, and futures price volatility

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  • Scott H. Irwin
  • Satoko Yoshimaru

Abstract

A major issue in recent years is the role that large, managed futures funds and pools play in futures markets. Many market participants argue that managed futures trading increases price volatility due to the size of managed futures trading and reliance on positive feedback trading systems. The purpose of this study is to provide new evidence on the impact of managed futures trading on futures price volatility. A unique data set on managed futures trading is analyzed for the period 1 December 1988 through 31 March 1989. The data set includes the daily trading volume of large commodity pools for 36 different futures markets. Regression results are unequivocal with respect to the impact of commodity pool trading on futures price volatility. For the 72 estimated regressions (two for each market), the coefficient on commodity pool trading volume is significantly different from zero in only four cases. These results constitute strong evidence that, at least for this sample period, commodity pool trading is not associated with increases in futures price volatility. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 759–776, 1999

Suggested Citation

  • Scott H. Irwin & Satoko Yoshimaru, 1999. "Managed futures, positive feedback trading, and futures price volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(7), pages 759-776, October.
    • Handle: RePEc:wly:jfutmk:v:19:y:1999:i:7:p:759-776
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    Cited by:

    1. Ji, Qiang & Bahloul, Walid & Geng, Jiang-Bo & Gupta, Rangan, 2020. "Trading behaviour connectedness across commodity markets: Evidence from the hedgers’ sentiment perspective," Research in International Business and Finance, Elsevier, vol. 52(C).
    2. Batista Soares, David & Borocco, Etienne, 2022. "Rational destabilization in commodity markets," Journal of Commodity Markets, Elsevier, vol. 25(C).
    3. Christopher L. Gilbert, 2010. "How to Understand High Food Prices," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 398-425, June.
    4. Sigl-Grüb, C. & Schiereck, D., 2010. "Speculation and Nonlinear Price Dynamics in Commodity Futures Markets," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 56603, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    5. Weiner, Robert J., 2000. "Sheep in Wolves' Clothing?," Cahiers de recherche 0001, GREEN.
    6. Yiuman Tse & Michael Williams, 2011. "Does Index Speculation Impact Commodity Prices? An Intraday Futures Analysis Using intraday data, we find that unidirectional causality runs from commodity index linked commodity futures to non-index ," Working Papers 0007, College of Business, University of Texas at San Antonio.
    7. Chen, Yu-Lun & Mo, Wan-Shin & Chang, Ya-Kai, 2022. "Investor sentiment spillover effect and market quality in crude oil futures," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 177-193.
    8. Benjamin R. Auer, 2021. "Have trend-following signals in commodity futures markets become less reliable in recent years?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 35(4), pages 533-553, December.
    9. Yiuman Tse & Michael R. Williams, 2013. "Does Index Speculation Impact Commodity Prices? An Intraday Analysis," The Financial Review, Eastern Finance Association, vol. 48(3), pages 365-383, August.
    10. Sanders, Dwight R. & Boris, Keith & Manfredo, Mark, 2004. "Hedgers, funds, and small speculators in the energy futures markets: an analysis of the CFTC's Commitments of Traders reports," Energy Economics, Elsevier, vol. 26(3), pages 425-445, May.

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