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Does the stock market drive herd behavior in commodity futures markets?

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  • Demirer, Rıza
  • Lee, Hsiang-Tai
  • Lien, Donald

Abstract

This paper contributes to the debate on commodity financialization by extending tests of herd behavior to commodity futures markets. Utilizing a regime-switching model, we test the presence of herd behavior in a number of commodity sectors including energy, metals, grains and livestock during the low and high market volatility states. We find significant evidence of herd behavior in grains only during the high volatility state. We also find that large price movements in the energy and metal sectors significantly contribute to herd behavior in the market for grains. Finally, we find no significant effect of the stock market on herd behavior in the commodity futures market. Our findings in general do not support the much debated commodity financialization hypothesis.

Suggested Citation

  • Demirer, Rıza & Lee, Hsiang-Tai & Lien, Donald, 2015. "Does the stock market drive herd behavior in commodity futures markets?," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 32-44.
    • Handle: RePEc:eee:finana:v:39:y:2015:i:c:p:32-44
    DOI: 10.1016/j.irfa.2015.02.006
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    More about this item

    Keywords

    Herd behavior; Commodity financialization; Return dispersion; Markov switching;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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