‘Do Institutional Traders Predict Bull and Bear Markets?’
by Bahattin Büyükşahin
American University, Washington
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We analyze the role of hedge fund, swap dealer, and arbitrageur activity in the crude oil market. Using confidential position data on institutional investors, we first analyze the linkages between trader positions and fundamentals. We find that these institutional position changes reflect fundamental economic factors. Subsequently, we adopt a Markov regime-switching model with time-varying probabilities and find institutional position changes contribute incrementally to the probability of regime changes, displaying the synchronization patterns modeled in Abreu and Brunnermeier (2002; 2003).