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Returns to individual traders in agricultural futures markets: skill or luck?

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  • Nicole M. Aulerich
  • Scott H. Irwin
  • Philip Garcia

Abstract

Using individual trader data from the Commodity Futures Trading Commission's (CFTC) Large Trader Reporting System (LTRS) for the period January 2000 to September 2009, this article investigates whether noncommercial traders in the corn, live cattle and coffee futures markets persist in making profits. Two out-of-sample measures of skill -- a winner and a loser ranking test and a top and a bottom decile test -- are used to analyse the ability of traders to consistently perform well at monthly, quarterly and annual time horizons. The findings identify significant persistence in rankings -- traders in the top half of the profit distribution in a time period tend to stay in the top half in the next period. Differences in magnitude of profitability between the top and bottom deciles also provide support that persistent skill exists among the top 10% of traders. Detailed examination of annual rankings for those traders who were most continuously in the markets further reveals persistence in profits for a smaller subset of traders, as well as an indication of persistence in the face of losses.

Suggested Citation

  • Nicole M. Aulerich & Scott H. Irwin & Philip Garcia, 2013. "Returns to individual traders in agricultural futures markets: skill or luck?," Applied Economics, Taylor & Francis Journals, vol. 45(25), pages 3650-3666, September.
    • Handle: RePEc:taf:applec:v:45:y:2013:i:25:p:3650-3666
    DOI: 10.1080/00036846.2012.727979
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    References listed on IDEAS

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    1. Stewart, Blair, 1949. "An Analysis of Speculative Trading in Grain Futures," Technical Bulletins 156265, United States Department of Agriculture, Economic Research Service.
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    Cited by:

    1. Li, Xin & Paulson, Nicholas, 2014. "Is Farm Management Skill Persistent?," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170170, Agricultural and Applied Economics Association.
    2. Çınar, Gökhan & Uzmay, Ayse, 2017. "Does Fear (Vix Index) Incite Volatility In Food Prices?," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 5(2), April.
    3. Cornelia Staritz & Bernhard Tröster & Jan Grumiller & Felix Maile, 2023. "Price-Setting Power in Global Value Chains: The Cases of Price Stabilisation in the Cocoa Sectors in Côte d’Ivoire and Ghana," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 35(4), pages 840-868, August.
    4. Heumesser, Christine & Staritz, Cornelia, 2013. "Financialisation and the microstructure of commodity markets: A qualitative investigation of trading strategies of financial investors and commercial traders," Working Papers 44, Austrian Foundation for Development Research (ÖFSE).
    5. Li, Ziran, 2017. "Three essays on commodity markets," ISU General Staff Papers 201701010800006361, Iowa State University, Department of Economics.
    6. Nicole M. Moran & Scott H. Irwin & Philip Garcia, 2020. "Who Wins and Who Loses? Trader Returns and Risk Premiums in Agricultural Futures Markets," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(4), pages 611-652, December.
    7. Ziran Li & Dermot J. Hayes & Keri L. Jacobs, 2018. "The weather premium in the U.S. corn market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(3), pages 359-372, March.
    8. Li, Xi & Paulson, Nicholas & Schnitkey, Gary, 2015. "Is Farm Management Skill Persistent?," 2015 Conference, August 9-14, 2015, Milan, Italy 212047, International Association of Agricultural Economists.
    9. Georg Lehecka, 2015. "Do hedging and speculative pressures drive commodity prices, or the other way round?," Empirical Economics, Springer, vol. 49(2), pages 575-603, September.

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