Do funds distort price movements?
by B. Wade Brorsen and Scott H. Irwin
The rapid rise of large-scale technical trading by futures funds has led to a concern that such trading
could distort futures price movements. Our previous research shows that quite different technical trading
systems do, in fact, signal trades on the same day a significant amount of the time. Whether this
similarity is actually translated into price-distorting trading depends on the total size of trading and the
particular trading techniques of futures fund trading advisors.
We surveyed the 32 largest public futures fund advisory groups in February 1986 to better measure the
size of their positions in each contract and investigate the similarity of their techniques. The 32 advisors
represented 50% of all advisors in December 1985 and managed slightly less than 80% of the public
futures funds listed.
Twenty-one of those surveyed responded and the average respondent was 42 years old and highly
educated. Of the 25 individuals responding (some funds are co-managed), all had attended college and
only four did not have degrees. Seven had doctorates and most had degrees in business, engineering,
physics or mathematics.