Small Traders in Currency Futures Markets Format

Quantitative Finance Research Centre Research Paper No. 278

24 Pages Posted: 28 Jun 2010

See all articles by Andreas Röthig

Andreas Röthig

Deutsche Bundesbank

Carl Chiarella

University of Technology, Sydney - UTS Business School, Finance Discipline Group

Date Written: May 1, 2010

Abstract

This study examines the interrelation between small traders open interest and large hedging and speculation in the Canadian dollar, Swiss franc, British pound, and Japanese yen futures markets. The results, based on Granger-causality tests and vector autoregressive models, suggest that small traders open interest is closely related to large speculators open interest. Small traders and speculators tend to herd, which means that small traders are long [short] when speculators are long [short] as well. Moreover, small traders and speculators are positive feedback traders whereas hedgers are contrarians. Regarding information flows, speculators lead small traders in three of the four currency futures markets. The results therefore suggest that small traders ares mall speculators who follow the large speculators, indicating that they are less well informed than the larges peculators.

Keywords: currency futures, small traders, speculation, hedging

JEL Classification: F31, G15

Suggested Citation

Röthig, Andreas and Chiarella, Carl, Small Traders in Currency Futures Markets Format (May 1, 2010). Quantitative Finance Research Centre Research Paper No. 278, Available at SSRN: https://ssrn.com/abstract=1631502 or http://dx.doi.org/10.2139/ssrn.1631502

Andreas Röthig

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Carl Chiarella (Contact Author)

University of Technology, Sydney - UTS Business School, Finance Discipline Group ( email )

PO Box 123
Broadway, NSW 2007
Australia
+61 2 9514 7719 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://www.business.uts.edu.au/finance/

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