Identifying Informed Traders in Futures Markets

60 Pages Posted: 30 Oct 2010 Last revised: 13 Apr 2011

See all articles by Raymond P.H. Fishe

Raymond P.H. Fishe

University of Richmond - E. Claiborne Robins School of Business

Aaron Smith

University of California, Davis - Department of Agricultural and Resource Economics

Date Written: September 29, 2010

Abstract

We use daily positions of futures market participants to identify informed traders. These data cover the period from 2000 to mid-2009 and contain 8,921 unique traders. We identify between 94 and 230 traders as overnight informed and 91 as intraday informed with little overlap between these two groups. Floor brokers/traders are over-represented in the overnight informed group, suggesting that ability to process order flow information creates success at this horizon. The intraday informed group is dominated by managed money traders/hedge funds and swap dealers, with commercial hedgers significantly under-represented in this group. Also, we find that trader characteristics such as experience, average position size, amount of trading activity, and type of positions held offer significant predictive power for who is informed. An analysis of daily trader profits confirms that our methods select highly profitable traders.

Keywords: Commodities, False Discovery Rate, Forecasting Ability, Informed Traders

JEL Classification: G10, G13

Suggested Citation

Fishe, Raymond P.H. and Smith, Aaron D., Identifying Informed Traders in Futures Markets (September 29, 2010). Available at SSRN: https://ssrn.com/abstract=1699779 or http://dx.doi.org/10.2139/ssrn.1699779

Raymond P.H. Fishe (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Road
Richmond, VA 23173
United States
804-289-8549 (Phone)

Aaron D. Smith

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-2138 (Phone)
530-752-5614 (Fax)

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