Weekly Futures Reversal Filtered by Volume and Open Interest

Summary

This strategy applies short-horizon mean reversion to a universe of 24 US futures markets. It uses weekly Wednesday-to-Wednesday returns and ranks contracts within groups defined by recent changes in trading volume and open interest. Volume is normalized across markets; contracts are classified by whether volume changes are above or below the cross-market median, while open interest changes split them into high and low groups. The strategy buys the weakest recent performers and shorts the strongest within the high-volume, low-open-interest group, with positions weighted by each contract’s return relative to its group average. It uses the nearest contract except during the delivery month, when it rolls to the second-nearest contract.

The cited research reports weekly return reversals and says contrarian profits are associated positively with prior volume changes and negatively with prior open-interest changes. The proposed explanation is that overreaction and heavy trading can precede price reversals, while open interest may reflect hedging activity. The page warns that the strategy’s equity-market crisis behavior is unknown and that reversal exposure can be vulnerable during high-volatility periods. It gives no full performance statistics in the supplied text.

Key ideas

• The method takes contrarian positions in weekly futures winners and losers.
• Its signal combines recent returns with lagged changes in volume and open interest.
• The described long-short portfolio focuses on contracts with high volume and low open interest.
• The source research reports weekly reversals across 24 US futures markets.
• The page cautions that crisis correlations are unknown and that sharp volatility can create risks.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.