Abstract
Economists have traditionally viewed futures prices as fully informative about future economic activity and asset prices. We argue that open interest could be more informative than futures prices in the presence of hedging demand and limited risk absorption capacity in futures markets. We find that movements in open interest are highly pro-cyclical, correlated with both macroeconomic activity and movements in asset prices. Movements in commodity market interest predict commodity returns, bond returns, and movements in the short rate even after controlling for other known predictors. To a lesser degree, movements in open interest predict returns in currency, bond, and stock markets.
Original language | English (US) |
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Pages (from-to) | 473-490 |
Number of pages | 18 |
Journal | Journal of Financial Economics |
Volume | 105 |
Issue number | 3 |
DOIs | |
State | Published - Sep 1 2012 |
Externally published | Yes |
All Science Journal Classification (ASJC) codes
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management
Keywords
- Bonds
- Business cycle
- Commodities
- Currencies
- Futures market
- Inflation