فعالیت های تجاری آینده و حرکات قابل پیش بینی بازار ارز

In this paper, we examine the relation between futures trading activity by trader type and returns over short horizons in five foreign currency futures markets – British pound, Canadian dollar, Deutsche mark, Japanese yen, and Swiss franc. Transforming trading activity into a sentiment measure, we find that speculator sentiment is positively related to future returns. In contrast, hedger sentiment covaries negatively with future returns. We also find that extreme sentiment by trader type is more correlated with future market movements than moderate sentiment. Our results suggest that hedgers lose to speculators in these futures markets, on average. Based on equilibrium pricing models that futures risk premiums are determined by both market risk and hedging pressure, we show that the profits to speculators are in general compensation for bearing risk.

The efficiency of foreign exchange (FX) markets has long been a central issue in international finance research. A large volume of literature applies technical trading rules in spot and futures FX markets and documents unexploited profit opportunities. Examples of this literature include Sweeney (1986), Taylor and Allen (1992), Levich and Thomas (1993), Kho (1996), and LeBaron (1999). Other FX puzzles such as forward bias and deviations from uncovered interest parity raise further questions about the efficiency of FX markets.1 More recent research applies tools from the market microstructure literature to study currency price dynamics in terms of order flow between various types of FX dealers. These studies find that the information structure between FX dealers influences the dynamics of prices and the patterns of trades. The observed correlation between order flow and currency returns is generally interpreted to mean that some agents possess private information (e.g., Lyons, 1995; Evans, 2002; Evans and Lyons, 2002). This paper adds to the recent literature by examining whether a specific trader type consistently beats the market in five actively traded foreign currency futures markets that include the British pound (BP), Canadian dollar (CD), Deutsche mark (DM), Japanese yen (JY), and Swiss franc (SF). We thus provide a test of FX market efficiency in the futures context. To accomplish this, we examine the relation between futures returns and lagged net positions of speculators and hedgers.2 To facilitate comparisons across markets and to allow for an intuitive measure, we construct a sentiment index based on net trader positions. We then focus on the profitability of sentiment-based timing strategies. We find that investor sentiment by trader type varies systematically with returns over short horizons in the futures markets in our sample. However, the relation between sentiment and future returns differs for speculators and hedgers. Whereas speculator sentiment varies positively with future returns, hedger sentiment varies negatively with future returns. We also find that extreme sentiment is more correlated with future market movements than is moderate sentiment. Our results suggest that speculators profit from trading currency futures, but hedgers lose money, on average. At first glance, our results appear to contradict the efficient markets hypothesis (EMH). However, if speculator sentiment varies with expected risk premiums, the superior performance of speculators does not necessarily imply market inefficiency. Various asset pricing studies have documented evidence of time varying risk premiums in currency futures markets (e.g., McCurdy and Morgan, 1991 and McCurdy and Morgan, 1992; Bessembinder, 1992; Kho, 1996). Unless risk premiums implicit in sentiment-based timing strategies are properly addressed, concluding that the profits to speculators are unusual may be premature. To adjust for risk, we analyze the sources of speculative profits based on the equilibrium pricing model of Hirshleifer (1990) who shows that futures risk premiums are determined by both systematic market risk and hedging pressure. Market risk arises from the correlation of the futures price with a market portfolio. Hedging pressure results from risks that agents cannot, or do not want to trade because of market frictions. Hedgers participate in futures markets to reduce risk. Thus, their net supply of futures contracts, or hedging pressure, is related to risk premiums. Bessembinder (1992) and De Roon et al. (2000) provide empirical support for the combined role of systematic risk and hedging pressure in determining futures prices in broad markets. We adopt a two-stage procedure to investigate whether the profits to speculators are attributable to market risk premiums, hedging pressure, or rewards to superior forecasting ability. In the first stage, we adjust futures returns for time varying market risk. After controlling for market risk, we capture hedging pressure effects in the negative relation between future returns and hedger sentiment. The second stage allows us to disentangle the rewards to superior forecasting ability from the premium associated with hedging pressures. Taking both market risk and hedging pressure into consideration, we find that speculative profits disappear in the BP, CD, JY, and SF markets, but not for the DM futures if we use classical t-statistics. When we employ Bayesian inference procedures to adjust for sample size (as in Jeffreys (1961) and Connolly (1991)), the apparent speculative profits in the DM futures market also disappear. Our finding that the relation between speculator sentiment and returns remains positive and significant after accounting for market risk and becomes insignificant after hedging pressure is accounted for suggests that hedging pressure is an important risk in currency futures markets, which has been ignored in the prior studies (e.g., McCurdy and Morgan, 1992; Levich and Thomas, 1993; Kho, 1996). Failure to consider this risk is likely to result in misleading inferences with regard to market efficiency.3 Our results also suggest that classical hypothesis tests with fixed significance levels lead to excessive rejection of the null hypothesis even if sample sizes are only moderately large. The remainder of this article is organized as follows. Section 2 provides the data and empirical design. Section 3 presents the empirical results. Brief conclusions are provided in Section 4.

We examine the relation between trading activity by trader type and future returns over short horizons in five major foreign currency futures markets – BP, CD, DM, JY, and SF. Transforming trading activity into a sentiment measure, we document that speculator sentiment is positively correlated with future returns, but hedger sentiment is negatively related to future returns in these futures markets. Moreover, extreme sentiment by trader type is more correlated with future market movements than is the level of sentiment. Thus, it appears that speculators profit from trading these currency futures over reasonable return horizons, whereas hedgers lose money, on average. We further examine the role of futures risk premiums in explaining the speculative profits based on the equilibrium futures pricing model of Hirshleifer (1990). The evidence shows that futures risk premiums largely explain the profits to speculators. Therefore, the positive performance of speculators does not appear to contradict the EMH. We also find that the interpretation of classical t-statistics can be distorted even if the sample size is moderately large. Classical hypothesis-testing procedures indicate that speculators possess some forecasting ability in the DM futures market, which is indicative of market inefficiency. However, the evidence of market inefficiency is not supported by the posterior odds approach. Therefore, the significance level of classical hypothesis tests should be adjusted to avoid possible sample size-related distortions (e.g., Connolly, 1991). Our results suggest that the fact that hedgers lose to speculators in the foreign currency futures markets is not surprising. These losses generally represent compensation to speculators for insuring hedgers. Therefore, this study provides a test of hedging pressure theory in foreign currency futures markets from a different angle. A related argument in the line of Friedman's reasoning is that investors who lose money consistently may not survive for long. This argument does not appear to be valid for hedgers because they can benefit from risk reduction in several ways, as shown in the modern corporate hedging literature (e.g., Stulz, 1984; Smith and Stulz, 1985). Our findings have implications for academics. We have shown that hedging pressure effects tend to be strong in foreign currency futures markets. Consistent with our findings, Tien (2002) finds that hedging pressure explains a large portion of variation in foreign currency futures returns. Therefore, inference with regard to currency futures market efficiency in the previous studies can be misleading if hedging pressure effects are not properly accounted for. Moreover, sample size can distort the interpretation of classical test statistics even with a moderately large sample, and therefore, the significance level should be adjusted to avoid excessive rejection of a null hypothesis. Our results also have practical implications. Given that hedging pressure is priced in currency futures markets, a timing strategy contrary to hedgers' position changes and following speculators' position changes can be profitable.