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

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  • Aulerich, Nicole M.
  • Irwin, Scott H.

Abstract

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.

Suggested Citation

  • Aulerich, Nicole M. & Irwin, Scott H., 2011. "Returns to Individual Traders in Agricultural Futures Markets: Skill or Luck?," 2011 Conference, April 18-19, 2011, St. Louis, Missouri 285355, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:nccc11:285355
    DOI: 10.22004/ag.econ.285355
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    References listed on IDEAS

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    1. Leuthold, Raymond M & Garcia, Philip & Lu, Richard, 1994. "The Returns and Forecasting Ability of Large Traders in the Frozen Pork Bellies Futures Market," The Journal of Business, University of Chicago Press, vol. 67(3), pages 459-473, July.
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    3. Stewart, Blair, 1949. "An Analysis of Speculative Trading in Grain Futures," Technical Bulletins 156265, United States Department of Agriculture, Economic Research Service.
    4. Carpenter, Jennifer N. & Lynch, Anthony W., 1999. "Survivorship bias and attrition effects in measures of performance persistence," Journal of Financial Economics, Elsevier, vol. 54(3), pages 337-374, December.
    5. Hartzmark, Michael L, 1991. "Luck versus Forecast Ability: Determinants of Trader Performance in Futures Markets," The Journal of Business, University of Chicago Press, vol. 64(1), pages 49-74, January.
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    Cited by:

    1. Mattos, Fabio & Brooks, Kathleen, 2014. "Marketing Strategies for Soybeans in 1997-2012: Performance Persistence and Risk-return Tradeoffs," 2014 Conference, April 21-22, 2014, St. Louis, Missouri 285822, NCR-134/ NCCC-134 Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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