Small Traders in Currency Futures Markets

Carl Chiarella and Andreas Röthig

No 278, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

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 large speculators.

Keywords: currency futures; small traders; speculation; hedging (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2010-05-01
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as: Chiarella, C. and Rothig, A., 2011, "Small Traders in Currency Futures Markets", Journal of Futures Markets, 31(9), 898-914.

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Journal Article: Small traders in currency futures markets (2011)
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