Commodity Financialization and Herd Behavior in Commodity Futures Markets

28 Pages Posted: 17 May 2013 Last revised: 28 Apr 2015

See all articles by Riza Demirer

Riza Demirer

Southern Illinois University Edwardsville - Department of Economics & Finance; Economic Research Forum (ERF)

Hsiang-Tai Lee

National Chi Nan University - Department of Finance

Donald D. Lien

University of Texas at San Antonio - College of Business - Department of Economics

Date Written: May 1, 2013

Abstract

This paper contributes to the debate on commodity financialization by extending tests of herd behavior to the 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 metals 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 markets. Our findings in general do not support the much debated commodity financialization hypothesis.

Keywords: herd behavior, commodity financialization, return dispersion, Markov Switching

JEL Classification: G14, G15

Suggested Citation

Demirer, Riza and Lee, Hsiang-Tai and Lien, Donald, Commodity Financialization and Herd Behavior in Commodity Futures Markets (May 1, 2013). International Review of Financial Analysis, Vol. 39, 2015. Available at SSRN: https://ssrn.com/abstract=2265506 or http://dx.doi.org/10.2139/ssrn.2265506

Riza Demirer (Contact Author)

Southern Illinois University Edwardsville - Department of Economics & Finance ( email )

Department of Economics & Finance
Alumni Hall 3144
Edwardsville, IL 62026-1102
United States
(618) 650-2939 (Phone)
(618) 650-3047 (Fax)

HOME PAGE: http://www.siue.edu/~rdemire/

Economic Research Forum (ERF)

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Cairo, Cairo
Egypt

HOME PAGE: http://erf.org.eg/affiliates/riza-demirer-3/

Hsiang-Tai Lee

National Chi Nan University - Department of Finance ( email )

Taiwan

Donald Lien

University of Texas at San Antonio - College of Business - Department of Economics ( email )

6900 North Loop 1604 West
San Antonio, TX 78249
United States
210-458-4313 (Phone)
210-458-4308 (Fax)

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