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Speculation and Hedging in the Currency Futures Markets: Are They Informative to the Spot Exchange Rates

Aaron Tornell () and Chunming Yuan
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Aaron Tornell: University of California Los Angeles

No 09-116, UMBC Economics Department Working Papers from UMBC Department of Economics

Abstract: This paper presents an empirical analysis investigating the relationship between the futures trading activities of speculators and hedgers and the potential movements of major spot exchange rates. A set of trader position measures are employed as regression predictors, including the level and change of net positions, an investor sentiment index, extremely bullish/bearish sentiments, and the peak/trough indicators. We find that the peaks and troughs of net positions are generally useful predictors to the evolution of spot exchange rates but other trader position measures are less correlated with future market movements. In addition, speculative position measures usually forecast price-continuations in spot rates while hedging position measures forecast price-reversals in these markets.

Keywords: Spot Exchange Rates; Currency Futures; Speculation; Hedging; Commitments of Traders (search for similar items in EconPapers)
JEL-codes: F31 F37 G13 G15 G17 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2009-11-01
New Economics Papers: this item is included in nep-for and nep-mst
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http://www.umbc.edu/economics/wpapers/wp_09_116.pdf (application/pdf)

Related works:
Journal Article: Speculation and hedging in the currency futures markets: Are they informative to the spot exchange rates (2012)
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