Noise Trader Demand in Futures Market

OFOR Working Paper 96-02

32 Pages Posted: 17 Oct 1996

See all articles by Dwight R. Sanders

Dwight R. Sanders

Southern Illinois University - Agribusiness Economics

Date Written: June 1996

Abstract

Theoretical noise trader models suggest that uninformed traders can impact market prices. However, these models' conclusions depend crucially on the assumed specification for noise trader demand. This research seeks to empirically determine the appropriate demand specification for uninformed traders. Using commercial market sentiment indices as proxies for noise trader demand, Granger causality models are estimated to examine the linear linkages between sentiment and futures returns. The models strongly suggest that noise traders are positive feedback traders (i.e., extrapolative expectations) with relatively long memories.

JEL Classification: Q13, Q14, G14

Suggested Citation

Sanders, Dwight R., Noise Trader Demand in Futures Market (June 1996). OFOR Working Paper 96-02, Available at SSRN: https://ssrn.com/abstract=15145 or http://dx.doi.org/10.2139/ssrn.15145

Dwight R. Sanders (Contact Author)

Southern Illinois University - Agribusiness Economics ( email )

Carbondale, IL 62901-4515
United States
618-453-1711 (Phone)

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