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Trading behavior in S&P 500 index futures

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  • Smales, Lee A.

Abstract

This article examines the determinants of trading decisions and the performance of trader types, in the context of the E-Mini S&P 500 futures and S&P 500 futures markets. Speculators and small traders tend to follow positive feedback strategies while hedgers dynamically adjust positions in response to market returns. Such strategies apparently reverse during the 2008–09 financial crisis. Investor sentiment and market volatility play an important role in determining the net trading position of traders across the sample period. While all trader types are better at foreseeing market upturns, an out-of-sample test suggests that speculators and small traders have some predictive ability for short-term market returns.

Suggested Citation

  • Smales, Lee A., 2016. "Trading behavior in S&P 500 index futures," Review of Financial Economics, Elsevier, vol. 28(C), pages 46-55.
    • Handle: RePEc:eee:revfin:v:28:y:2016:i:c:p:46-55
    DOI: 10.1016/j.rfe.2015.11.001
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    Cited by:

    1. Fotini Economou & Konstantinos Gavriilidis & Bartosz Gebka & Vasileios Kallinterakis, 2022. "Feedback trading: a review of theory and empirical evidence," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 15(4), pages 429-476, February.
    2. Greppmair, Stefan & Theissen, Erik, 2019. "Small is beautiful? How the introduction of mini futures contracts affects the regular contract," CFR Working Papers 19-06, University of Cologne, Centre for Financial Research (CFR).
    3. Greppmair, Stefan & Theissen, Erik, 2022. "Small is beautiful? How the introduction of mini futures contracts affects the regular contracts," Journal of Empirical Finance, Elsevier, vol. 67(C), pages 19-38.
    4. Qingbin Gong & Zhe Yang, 2020. "Arbitrage, speculation and futures price fluctuations with boundedly rational and heterogeneous agents," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(4), pages 763-791, October.

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    More about this item

    Keywords

    Index futures; Trading behavior; Investor sentiment; CFTC; COT;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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