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Does speculation in the oil market drive investor herding in emerging stock markets?

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  • Balcılar, Mehmet
  • Demirer, Rıza
  • Ulussever, Talat

Abstract

This paper examines whether the time variation in the level of investor herding in the stock markets of major oil exporting nations relates to speculation and volatility in the global oil market. We find that speculative activities in the oil market, rather than oil price movements, are positively correlated with anti-herding in the stock markets of major exporters. We argue that traders take the speculative signals from the oil market as a sign of positive expectations and try to generate superior profits by going against the crowd in their local market. While this pattern largely holds during calm (low volatility) market periods, we also find that significant herd behavior takes place during high volatility (or crisis) periods. The findings suggest that policy makers who are concerned about stability in their stock markets should monitor measures of speculative activities in the energy market in order to model and monitor volatility and/or risk transmissions into their markets.

Suggested Citation

  • Balcılar, Mehmet & Demirer, Rıza & Ulussever, Talat, 2017. "Does speculation in the oil market drive investor herding in emerging stock markets?," Energy Economics, Elsevier, vol. 65(C), pages 50-63.
  • Handle: RePEc:eee:eneeco:v:65:y:2017:i:c:p:50-63
    DOI: 10.1016/j.eneco.2017.04.031
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    References listed on IDEAS

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    Cited by:

    1. Esin Cakan & Rıza Demirer & Rangan Gupta & Hardik A. Marfatia, 2017. "Oil Speculation and Herding Behavior in Emerging Stock Markets," Working Papers 201749, University of Pretoria, Department of Economics.
    2. Firmin Doko Tchatoka & Virginie Masson & Sean Parry, 2018. "Linkages Between Oil Price Shocks and Stock Returns Revisited," School of Economics Working Papers 2018-01, University of Adelaide, School of Economics.

    More about this item

    Keywords

    Crude oil; Speculative ratio; Herd behavior; Equity return dispersion; Markov-switching;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • 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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