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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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    References listed on IDEAS

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    3. Cifarelli, Giulio & Paesani, Paolo, 2018. "Navigating the oil bubble: A non-linear heterogeneous-agent dynamic model of futures oil pricing," MPRA Paper 90470, University Library of Munich, Germany.
    4. repec:eee:enepol:v:116:y:2018:i:c:p:127-136 is not listed on IDEAS
    5. Antonakakis, Nikolaos & Chang, Tsangyao & Cunado, Juncal & Gupta, Rangan, 2018. "The relationship between commodity markets and commodity mutual funds: A wavelet-based analysis," Finance Research Letters, Elsevier, vol. 24(C), pages 1-9.
    6. Boako, Gideon & Alagidede, Paul, 2016. "Global commodities and African stocks: A ‘market of one?’," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 226-237.
    7. repec:eee:ecolet:v:167:y:2018:i:c:p:36-39 is not listed on IDEAS
    8. Babalos, Vassilios & Stavroyiannis, Stavros & Gupta, Rangan, 2015. "Do commodity investors herd? Evidence from a time-varying stochastic volatility model," Resources Policy, Elsevier, vol. 46(P2), pages 281-287.
    9. Huchet, Nicolas & Fam, Papa Gueye, 2016. "The role of speculation in international futures markets on commodity prices," Research in International Business and Finance, Elsevier, vol. 37(C), pages 49-65.
    10. repec:eee:finlet:v:21:y:2017:i:c:p:126-131 is not listed on IDEAS
    11. repec:eee:ecmode:v:68:y:2018:i:c:p:318-328 is not listed on IDEAS

    More about this item

    Keywords

    Herd behavior; Commodity financialization; Return dispersion; Markov switching;

    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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