Premium
What drives informed trading before public releases? Evidence from natural gas inventory announcements
Author(s) -
Gu Chen,
Kurov Alexander
Publication year - 2018
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.21926
Subject(s) - futures contract , sharpe ratio , trading strategy , public information , financial economics , economics , business , econometrics , actuarial science , computer science , portfolio , internet privacy
This paper shows evidence of informed trading in the natural gas futures market before gas inventory announcements. We examine whether traders can predict the upcoming announcement by processing public information. The results show that the difference between the median forecast of analysts with high historical forecasting accuracy and the consensus forecast can be used to predict inventory surprises. This predictor explains some of the pre‐announcement price drift, suggesting that informed trading before the announcement is likely to be driven by superior forecasting rather than by information leakage. A simple trading strategy conditioned on the predictor would have generated an annualized Sharpe ratio of 1.26.