Title: The Commitment of Traders report as a trading signal? Short-term price reversals and market efficiency in the US-futures market

Authors: Simon Dreesmann; Tim Alexander Herberger; Michel Charifzadeh

Addresses: IU International University, Erfurt, Germany; Chair of Business Administration, especially Entrepreneurship, Finance and Digitalization Andrássy University, Budapest, Hungary ' Chair of Business Administration, especially Entrepreneurship, Finance and Digitalization Andrássy University, Budapest, Hungary ' ESB Business School, Reutlingen University, Reutlingen, Germany

Abstract: The Commitment of Traders report (CoT) has been around for over 30 years, consistently revealing the futures positions of key market players. This study's primary aim is to use the comprehensive data from the Commitment of Traders reports to develop a short-term reversal trading strategy. Against the benchmark, a S&P 500 buy-and-hold approach with a Sharpe ratio of 1.07, the CoT long only strategy generated significant results in six individual markets. Extending the strategy to long-and-short, two markets outperformed the benchmark significantly. However, a scenario analysis indicated underperformance of the CoT strategy when traded in a portfolio, confirming that the chosen strategy parameters could not generate excess Sharpe ratios. Our results indicate that the Commodity Futures Trading Commission, more specifically the CoT report, contributed to efficient derivatives market.

Keywords: futures short-term reversal trading strategy; Commitment of Traders report; portfolio optimisation; Monte Carlo simulation; efficient derivatives market.

DOI: 10.1504/IJFMD.2023.129093

International Journal of Financial Markets and Derivatives, 2023 Vol.9 No.1/2, pp.76 - 113

Received: 21 Apr 2022
Accepted: 20 Nov 2022
Published online: 17 Feb 2023 *