Price reversals in futures markets

We examine the profitability of contrarian portfolio strategies of buying past losers and selling past winners at weekly intervals in 24 major U.S. futures markets. We document significant contrarian profits over the one-week horizon. Unlike in equity markets, we show that the contrarian profits arise from the negative serial dependence in returns of individual futures contracts. Furthermore, the profits remain significant after corrections for plausible transaction costs in futures trading. Imperfections in market microstructure like bid-ask spread and nonsynchronous trading appear trivial in our sampled futures markets. Consistent with the findings of equity market studies (e.g., Lehmann, 1990; Jegadbesh, 1990), our results suggest that futures markets tend to overreact to new information.