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Investor Sentiment and Return Predictability in Agricultural Futures Markets
Author(s) -
Wang Changyun
Publication year - 2001
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.2003
Subject(s) - predictability , futures contract , speculation , economics , market sentiment , financial economics , index (typography) , position (finance) , finance , computer science , physics , quantum mechanics , world wide web
This study examines the usefulness of trader‐position‐based sentiment index for forecastingfuture prices in six major agricultural futures markets. It has been found that large speculator sentimentforecasts price continuations. In contrast, large hedger sentiment predicts price reversals. Small tradersentiment hardly forecasts future market movements. An investigation was performed into varioussentiment‐based timing strategies, and it was found that the combination of extreme large tradersentiments provides the strongest timing signal. These results are generally consistent with thehedging‐pressure theory, suggesting that hedgers pay risk premiums to transfer nonmarketable risks infutures markets. Moreover, it does not appear that large speculators in the futures markets possess any superiorforecasting ability. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:929–952, 2001