Asymmetric effect of oil prices on herding in commodity markets

Abstract

Purpose

This study aims to test the presence of herding behavior in commodity markets, including energy, metals and agriculture. Additionally, the authors investigate the possible asymmetric effect of oil price changes on the herding behavior in these markets.

Design/methodology/approach

The authors examine herding based on the cross-sectional absolute deviation (CSAD) model in a static and time-varying perspective.

Findings

By using daily data over the period 2003–2017, the authors’ findings firstly support the dynamic nature of investor behavior in commodity markets, which oscillates between antiherding during the normal period and herding during and after the global financial crisis of 2008. Furthermore, results highlight that the asymmetric impact of oil shocks on herding differs across commodity sectors and periods. Additionally, herding seems to be more pronounced when the oil market declines, which may be due to the pessimistic investors' sentiments.

Practical implications

This study provides insight into what factors influence herd behavior in commodity markets. The understanding of factors driving herding aids investors to avoid the impact of this behavior and its consequences

Originality/value

To the authors’ knowledge, this study is the first to examine whether the level of herding depends on the oil price fluctuations, as well as the asymmetric effect of the oil price on herding behavior in commodity markets.

Citation

Youssef, M. and Mokni, K. (2021), "Asymmetric effect of oil prices on herding in commodity markets", Managerial Finance, Vol. 47 No. 4, pp. 535-554. https://doi.org/10.1108/MF-01-2020-0028