Smart Money: The Forecasting Ability of CFTC Large Traders in Agricultural Futures Markets

Dwight R. Sanders · Scott H. Irwin · Robert P. Merrin

57 citations0/0 files storedRePEc: Research Papers in Economics

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Financial Markets and Investment Strategies Market Dynamics and Volatility Stock Market Forecasting Methods

Abstract

The forecasting content of the Commodity Futures Trading Commission’s Commitments of Traders (COT) report is investigated. Bivariate Granger causality tests show very little evidence that traders’ positions are useful in forecasting (leading) returns in 10 agricultural futures markets. However, there is substantial evidence that traders respond to price changes. In particular, noncommercial traders display a tendency for trend following. The other trader classifications display mixed styles, perhaps indicating those trader categories capture a variety of traders. The results generally do not support use of the COT data in predicting price movements in agricultural futures markets.

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References

1993Tests for Parameter Instability and Structural Change With Unknown Change Point 1990Positive Feedback Investment Strategies and Destabilizing Rational Speculation 2006Facts and Fantasies about Commodity Futures 1986Does the Stock Market Rationally Reflect Fundamental Values?2012The Fundamentals of Commodity Futures Returns 2000Hedging Pressure Effects in Futures Markets 1985Returns to Speculators and the Theory of Normal Backwardation 1987Testing for market timing ability

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2016The impact of speculation on commodity futures markets – A review of the findings of 100 empirical studies 2018An update on speculation and financialization in commodity markets 2011New Evidence on the Impact of Index Funds in U.S. Grain Futures Markets 2014Speculative bubbles in agricultural prices 2014The Role of Index Trading in Price Formation in the Grains and Oilseeds Markets 2012Forecasting precious metal price movements using trader positions

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