43 Pages Posted: 2 Dec 2018 Last revised: 28 Feb 2019
Date Written: February 13, 2019
The article establishes that speculative pressure, or the net positions of speculators, contains relevant information on futures prices pervasively in commodity, currency and equity index markets. Systematically buying backwardated futures with net long speculative pressure and shorting contangoed futures with net short speculative pressure affords Sharpe ratios which are at least as attractive as those stemming from momentum, value or carry strategies. These results are robust to the consideration of transaction costs, liquidity concerns, alternative speculative pressure signals, several portfolio construction techniques, different ranking and holding periods and various subsamples. The speculative pressure premia are also found to explain the cross section of futures returns after accounting for momentum, value and carry or macroeconomic risks, global liquidity and volatility shocks. The findings however do not extend to fixed income futures markets where it is optimal for investors to be long only.
Keywords: Speculative pressure, Futures markets, Risk premium, Pricing
JEL Classification: G13, G14
Suggested Citation: Suggested Citation