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Smart Money? The Forecasting Ability of CFTC Large Traders

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  • Sanders, Dwight R.
  • Irwin, Scott H.
  • Merrin, Robert P.

Abstract

The forecasting ability of the Commodity Futures Trading Commission’s Commitment’s of Traders data set is investigated. Bivariate Granger causality tests show very little evidence that traders’ positions are useful in forecasting (leading) market returns. However, there is substantial evidence that traders respond to price changes. In particular, non-commercial traders display a tendency for trend-following. The other trader classifications display mixed styles, perhaps indicating that those trader categories capture a variety of traders. The results generally do not support the use of the Commitment’s of Traders data in predicting market movements.

Suggested Citation

  • Sanders, Dwight R. & Irwin, Scott H. & Merrin, Robert P., 2007. "Smart Money? The Forecasting Ability of CFTC Large Traders," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37556, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  • Handle: RePEc:ags:nccsci:37556
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    File URL: http://ageconsearch.umn.edu/record/37556/files/confp01-07.pdf
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    References listed on IDEAS

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    1. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-395, June.
    2. Dale, Charles & Zyren, John, 1996. "Noncommercial Trading in the Energy Futures Market," MPRA Paper 47463, University Library of Munich, Germany.
    3. 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.
    4. 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.
    5. Gary Gorton & K. Rouwenhorst, 2004. "Facts and Fantasies about Commodity Futures," Yale School of Management Working Papers amz2619, Yale School of Management, revised 01 Mar 2005.
    6. Sanders, Dwight R. & Irwin, Scott H. & Leuthold, Raymond M., 2003. "The Theory Of Contrary Opinion: A Test Using Sentiment Indices In Futures Markets," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 0(Number 1), pages 1-26.
    7. Buchanan, W. K. & Hodges, P. & Theis, J., 2001. "Which way the natural gas price: an attempt to predict the direction of natural gas spot price movements using trader positions," Energy Economics, Elsevier, vol. 23(3), pages 279-293, May.
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    Cited by:

    1. Dwight R. Sanders & Scott H. Irwin & Robert P. Merrin, 2010. "The Adequacy of Speculation in Agricultural Futures Markets: Too Much of a Good Thing?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(1), pages 77-94.

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    Keywords

    Agricultural Finance; Financial Economics;

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