The Prevalence, Sources, and Effects of Herding
Forthcoming, Journal of Futures Markets
48 Pages Posted: 15 Mar 2009 Last revised: 28 Aug 2015
Date Written: August 14, 2015
We test the prevalence, sources and effects of herding among large speculative traders in thirty U.S. futures markets over 2004-2009. Using unique U.S. Commodity Futures Trading Commission (CFTC) data identifying daily trader positions we compare herding among hedge funds and floor market participants and find similar levels of herding across groups at slightly higher levels than in equity markets. We analyze the sources of herding and find that the number of traders, trading volume and floor-based markets are positively associated with herding. Notably, we find that the moderate levels of herding by hedge funds serve to stabilize, rather than destabilize, prices in futures markets.
Keywords: Herding, Hedge Funds, Futures Markets
JEL Classification: G10
Suggested Citation: Suggested Citation