Tracking speculative trading

Managed futures funds are predominantly trend-followers. By analyzing positioning data, we provide novel evidence for this claim and estimate signals applied by these funds. We write trend-followers aggregate position as a weighted sum of past daily returns and use a generalized ridge regression for regularization and parameter estimation. This procedure prevents overfitting but remains flexible enough to capture various patterns. For the 23 commodities considered, trend-following can explain speculators’ position changes with an average R 2 of more than 40%. Finally, we document that producers act as contrarians in a way that closely mirrors the behavior of momentum traders. • Trend signals largely explain position changes of speculators in commodity markets. • Regularized regression accurately reveals the average trend signal. • The typical trading signal is remarkably stable across commodities and over time. • The basis and other popular trading signals do not improve the position change forecast. • Producers act as contrarians in a way that closely mirrors the behavior of momentum traders.