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Investor Sentiment and Return Predictability in Agricultural Futures Markets

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  • Changyun Wang

Abstract

This study examines the usefulness of trader‐position‐based sentiment index for forecasting future prices in six major agricultural futures markets. It has been found that large speculator sentiment forecasts price continuations. In contrast, large hedger sentiment predicts price reversals. Small trader sentiment hardly forecasts future market movements. An investigation was performed into various sentiment‐based timing strategies, and it was found that the combination of extreme large trader sentiments provides the strongest timing signal. These results are generally consistent with the hedging‐pressure theory, suggesting that hedgers pay risk premiums to transfer nonmarketable risks in futures markets. Moreover, it does not appear that large speculators in the futures markets possess any superior forecasting ability. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:929–952, 2001

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  • Changyun Wang, 2001. "Investor Sentiment and Return Predictability in Agricultural Futures Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 21(10), pages 929-952, October.
  • Handle: RePEc:wly:jfutmk:v:21:y:2001:i:10:p:929-952
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    1. Rockwell, Charles S., 1967. "Normal Backwardation, Forecasting, and the Return to Commodity Futures Traders," Food Research Institute Studies, Stanford University, Food Research Institute, vol. 0(Supplemen), pages 1-24.
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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