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Economics, Agricultural Economics, Finance Noise trader sentiment and the behavior of futures prices text Leuthold, Raymond M. Sanders, Dwight Robert 2011-05-07T12:29:52Z 2011-05-07T12:29:52Z 10000-01-01 1995 In this research, the noise trader sentiment model of De Long, Schleifer, Summers, and Waldmann is modified and applied to futures markets. The theoretical model predicts that overly optimistic (pessimistic) noise traders result in futures prices that are greater (less) than fundamental value. More specifically, the model indicates that futures prices contain a systematic bias proportional to the average level of sentiment, and market returns are predictable with the level of noise trader sentiment. Couched within Muth's rational forecasting framework, the model's predictions are tested on data from twenty-eight futures markets. Noise trader sentiment is proxied with commercial market sentiment indices. These data allow the formation of well-defined alternative hypotheses and, hence, more powerful statistical tests than found in previous research. The analysis reveals that the behavior of the commercial sentiment indices is consistent with noise trader sentiment as a theoretical construct. Fama-MacBeth cross-sectional regressions indicate that noise traders do not create a systematic bias in futures prices. Return predictability is evaluated with the Cumby-Modest market timing test and Granger causality tests. Sentiment is useful for predicting returns in only a few isolated cases. Overall, there is little evidence that noise trader sentiment impacts future prices. This research documents the existence of noise trader sentiment in futures markets and provides a comprehensive test for its effect. The empirical evidence provides only weak support for theoretical noise trader models. Importantly, the research establishes a unique data set for examining noise trader effects, thereby laying a groundwork for future research. Made available in DSpace on 2011-05-07T12:29:52Z (GMT). No. of bitstreams: 2 license.txt: 4922 bytes, checksum: 910b249b4beec47e7ab768910c8f966f (MD5) 9624479.pdf: 7319681 bytes, checksum: 20c4bb320f97ae5edd1bbe48945c35d5 (MD5) Previous issue date: 1995 Item marked as restricted to the 'UIUC Users [automated]' Group (id=2) by Howard Ding (hding2@illinois.edu) on 2011-05-07T14:41:47Z Item is restricted indefinitely. Restriction data tranferred 2014-07-01T11:18:07-05:00 Original Data Group with Access UIUC Users [automated] Release Date: none Reason: ETDs are only available to UIUC Users without author permission ETDs are only available to UIUC Users without author permission U of I Only AAI9624479 (UMI)AAI9624479 http://hdl.handle.net/2142/20133 eng Copyright 1995 Sanders, Dwight Robert Agricultural and Consumer Economics Agricultural Economics University of Illinois at Urbana-Champaign Dissertation Ph.D.