Measurement errors in index trader positions data: Is the price pressure hypothesis still invalid?

Abstract

In this paper, we examine whether the repeated rejection of Masters price pressure hypothesis is robust with respect to measurement errors in index trader position data. We allow for autocorrelated errors and a potential impact of index trader positions on the level and volatility of commodity returns. The resulting state-space model is estimated via particle MCMC. The empirical investigation relies on weekly data for eleven commodities contained in the SCoT reports. Our empirical findings show that the rejection of the price pressure hypothesis is robust concerning the inclusion of measurement errors in index trader positions data.