Do Large Hedgers and Speculators React to Events? A Stability and Events Analysis

Abstract

Using CFTC’s COT data, this letter analysed whether large hedgers and large speculators were influenced by major economic events of the 1990s. Eight major economics events are looked at over 10-year period, and findings support that these informed players were hardly affected by major events. The trading determinant model, mean equation model and, risk and return relationship model suggested the behaviour and performance of these key market players were stable, and any significant structural break were short lived. The use of SD as a measure of risk captured more breaks in the risk and return relationship model, due to its higher sensitiveness to futures prices in the 29 US futures markets.

Keywords: CFTC, hedgers, speculators, stability, event analysis

JEL Classification: G01, G14, G15