NOISE TRADE DEMAND IN FUTURES MARKETS

Theoretical noise trader models suggest that uninformed traders can impact market prices. However, these models' conclusions depend crucially on the assumed specification for noise trader demand. This research seeks to empirically determine the appropriate demand specification for uninformed traders. Using commercial market sentiment indices as proxies for noise trader demand, Granger causality models are estimated to examine the linear linkages between sentiment and futures returns. The models strongly suggest that noise traders are positive feedback traders (i.e., extrapolative expectations) with relatively long memories.


Subject(s):
Issue Date:
1996
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/14765
Total Pages:
32
Series Statement:
ACE OFOR 96-02




 Record created 2017-04-01, last modified 2017-08-23

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