The authors thank an anonymous referee and Dr. Robert Webb, the editor, for valuable comments and suggestions. All remaining errors are purely ours.
Speculation and hedging in the currency futures markets: Are they informative to the spot exchange rates†
Article first published online: 2 FEB 2011
© 2011 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 32, Issue 2, pages 122–151, February 2012
How to Cite
Tornell, A. and Yuan, C. (2012), Speculation and hedging in the currency futures markets: Are they informative to the spot exchange rates. J. Fut. Mark., 32: 122–151. doi: 10.1002/fut.20511
- Issue published online: 2 DEC 2011
- Article first published online: 2 FEB 2011
- Manuscript Accepted: DEC 2010
- Manuscript Received: MAR 2010
This study presents an empirical analysis investigating the relationship between the futures trading activities of speculators and hedgers and the potential movements of major spot exchange rates. A set of trader position measures are employed as regression predictors, including the level and change of net positions, an investor sentiment index, extremely bullish/bearish sentiments, and the peak/trough indicators. We find that the peaks and troughs of net positions are generally useful predictors to the evolution of spot exchange rates, but other trader position measures are less correlated with future market movements. In addition, speculative position measures usually forecast price-continuations in spot rates while hedging position measures forecast price-reversals in these markets. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark