Does Speculation in the Oil Market Drive Investor Herding in Net Exporting Nations?
34 Pages Posted: 6 Apr 2016
Date Written: January 29, 2016
This paper examines whether speculation in the global oil market contributes to herd behavior in the stock markets of net exporting nations. Using firm level data from the Gulf Arab stock markets, we show that investors display herd behavior during periods of high volatility while anti-herding is prevalent during calm markets. Anti-herding in the stock market is also found to be positively related to speculative activities in the global oil market as investors use signals from the oil market in their trades by trading away from the market consensus. We argue that traders take the speculative signals from the oil market as a sign of positive expectations and try to generate superior profits by going against the crowd in their local market.
Keywords: Herd behavior, Equity return dispersion, Crude Oil, Speculative ratio, Markov-switching
JEL Classification: C32, G14, G15
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