41 Pages Posted: 19 Sep 2011
Date Written: September 19, 2011
We analyze the role of hedge fund, swap dealer and arbitrageur activity in a Markov regime-switching model between high volatility bear markets and low volatility bull markets for crude oil, corn and Mini-S&P500 index futures. We find that these institutional positions reflect fundamental economic factors within each market. More importantly, institutional positions also contribute incrementally to the probability of regime changes displaying the synchronization patterns modeled in Abreu and Brunnermeier (2002; 2003). Conditioning on hedge fund activity and arbitrageur activity significantly improves our probability estimates, demonstrating that institutional positions can be useful in determining whether price trends resembling bubble patterns will continue or reverse.
Keywords: Markov regime-switching, hedge fund, swap dealer, institutional positions
JEL Classification: C3, G1
Suggested Citation: Suggested Citation
Buyuksahin, Bahattin and Brunetti, Celso and Harris, Jeffrey H., Do Institutional Traders Predict Bull and Bear Markets? (September 19, 2011). Available at SSRN: https://ssrn.com/abstract=1930197 or http://dx.doi.org/10.2139/ssrn.1930197
By Russell Jame