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Extreme speculative positioning and market reversals: An analysis using CFTC COT data
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School of Business |
Master's thesis
Electronic archive copy is available via Aalto Thesis Database.
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en
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59
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Abstract
This study investigates whether the high levels of speculative positioning in futures markets can serve as an indicator for market turnarounds. Using CFTC Commitment of Traders (COT) data as a proxy for market positioning, the research aims to assess its representativeness and effectiveness in predicting reversals. A contrarian trading strategy is applied, focusing on moments of extreme speculative positioning across various futures markets.
The findings suggest that while the strategy yields statistically significant alpha in equity index futures such as the S&P 500 E-Mini and Nikkei 225, its overall utility is limited. For currency and energy futures, the strategy produces only marginally positive returns without statistical significance.
These results call into question the reliability of CFTC COT data as a standalone signal for market turnarounds. The study contributes to the literature by providing a detailed analysis of the limitations of using COT data for market positioning and offers suggestions for future research.