Managed futures, positive feedback trading, and futures price volatility

Scott H. Irwin, Satoko Yoshimaru

Research output: Contribution to journalArticlepeer-review

Abstract

A major issue in recent years is the role that large, managed futures funds and pools play in futures markets. Many market participants argue that managed futures trading increases price volatility due to the size of managed futures trading and reliance on positive feedback trading systems. The purpose of this study is to provide new evidence on the impact of managed futures trading on futures price volatility. A unique data set on managed futures trading is analyzed for the period 1 December 1988 through 31 March 1989. The data set includes the daily trading volume of large commodity pools for 36 different futures markets. Regression results are unequivocal with respect to the impact of commodity pool trading on futures price volatility. For the 72 estimated regressions (two for each market), the coefficient on commodity pool trading volume is significantly different from zero in only four cases. These results constitute strong evidence that, at least for this sample period, commodity pool trading is not associated with increases in futures price volatility.

Original languageEnglish (US)
Pages (from-to)759-776
Number of pages18
JournalJournal of Futures Markets
Volume19
Issue number7
DOIs
StatePublished - Oct 1999

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance
  • Economics and Econometrics

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