Small Traders in Currency Futures Markets Format
Quantitative Finance Research Centre Research Paper No. 278
24 Pages Posted: 28 Jun 2010
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: Suggested Citation