V.7:10 (323-325): Do funds distort price movements? by B. Wade Brorsen and Scott H. Irwin

V.7:10 (323-325): Do funds distort price movements? by B. Wade Brorsen and Scott H. Irwin
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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.

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