Does herd behaviour exist in the commodities market? Online publication date: Sat, 30-Aug-2014
by Nikolaos Philippas
International Journal of Portfolio Analysis and Management (IJPAM), Vol. 1, No. 4, 2014
Abstract: During the last decade commodities have attracted both retail and institutional investors' interest due to their intense financialisation and the increased demand from the emerging markets (China, India, etc.). These new market conditions have caused concern about the possible effect on commodities prices and the relevant increase in their volatility. Under such circumstances a well known behaviour in the financial markets may evolve, the herd behaviour. This paper examines the existence of herding in the commodities market using monthly data of 50 primary commodities for the period 1/1980-3/2013. We employ the classical herding methodology of Chang et al. (2000) in the commodities market for the first time, augmenting the standard model with several explanatory variables. Even though there is no evidence of herding towards the market for the whole period under examination, we identify herding for specific sub-periods, as well as herding towards the gold returns.
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