Speculative Pressure

Abstract

The paper investigates the information content of speculative pressure across futures classes. Long-short portfolios of futures contracts sorted by speculative pressure capture a significant premium in commodity, currency and equity markets but not in fixed income markets. Exposure to commodity, currency and equity index futures’ speculative pressure is priced in the broad cross-section after controlling for momentum, carry, global liquidity and volatility risks. The findings are confirmed by robustness tests using alternative speculative pressure signals, portfolio construction techniques and sub-periods inter alia. We argue that there is an efficient hedgers-speculators risk transfer in commodity, currency and equity index futures markets.

Keywords: Speculative Pressure, Futures Markets, Risk Premium, Pricing

JEL Classification: G13, G14