Returns to Individual Traders in Agricultural Futures Markets: Skill or Luck?

Using individual trader data from the CFTC reporting system for the period January 2000 to September 2009, the paper investigates whether non-commercial traders in the corn, live cattle, and coffee futures markets persist in making profits. Two out-of-sample measures of skill—the Fisher Exact ranking test and a test to assess significant differences in the magnitude of profits of the top and bottom traders—are used to analyze trader’s ability to consistently perform well for monthly, quarterly, and annual time horizons. The findings identify significant persistence in rankings—traders in the top half of the profit distribution in a time period tend to stay in the top half in the next period. Differences in magnitude of profitability between the top and bottom deciles also provide support that persistent skill exists among the top 10% of traders. Detailed examination of annual rankings for those traders who were most continuously in the markets further reveals persistence in profits for a smaller subset of traders, and some indication of persistence in the face of losses.