Do index fund traders react to USDA announcements?
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Between 2006 and 2008, agricultural commodity prices and their volatilities increased dramatically (Frenk and Turbeville, 2011). Interestingly, index fund investment activity increased sharply during the same time period. This upsurge in index trader activity might have created significant buying pressure and hence increased commodity prices, because index traders hold long-only positions. The trading strategies of commodity index traders determine the extent of their influence in futures markets. Therefore, with the goal of identifying their trading strategies, this thesis investigates the reaction of commodity index traders to information contained in reports on agricultural commodities published by the United States Department of Agriculture (USDA) using event study methodology. Results provide empirical evidence that commodity index traders change their positions following USDA announcements. This implies that commodity index traders might be pursuing an active investment strategy rather than staying passive.