Herding and spillover effects in the Indian commodity futures market

Abstract

PurposeThe study examines herding in the Indian stock and commodity futures market including agricultural, metal and energy commodities. Herding is studied under various market conditions: rising and declining, high and low volatility. The study also examines spillover effects of herding.Design/methodology/approachThe study adapts the cross-sectional absolute deviation model given by Chang et al. (2000) to examine herding in Indian stock and commodity futures markets.FindingsThe results of the study indicate absence of herding among commodity futures under all market conditions except for the declining market where herding is present among energy futures. The investors investing in agricultural and energy commodities have a higher tendency to herd during high volatility days as compared to low volatility days. Further, the study of herding spillover effects indicates that the price fluctuations in metal commodities affect herding in agricultural and energy commodities.Research limitations/implicationsThe results can help market participants to diversify the risk by investing in agricultural, metal and energy futures along with the stocks.Originality/valueMajority of the previous studies explore herding among stocks and ignore commodities especially agricultural commodities. This study attempts to fill the gap by studying herding among various commodity futures. To the best of our knowledge this is the first study to explore herding spillover effects in the Indian stock and commodity futures market.

What Is the Effect of Oil and Gas Markets (Spot/Futures) on Herding in BRICS? Recent Evidence (2007–2022)

“…This is prevalent in the US market, but disappeared in European and Asian markets during the SARS epidemic (Chang et al 2020). In a case study of herding in Indian energy commodity futures, Dewan and Dharni (2022) observed the absence of herding amongst energy commodity futures, except for downward market states, but reported a higher degree of herding behaviour for energy commodities during more volatile periods.…”

Does the Egyptian Exchange Market Still Have Herd Behavior?

“…and Huang , R.D., 1995) CH is then calculated using cross-sectional standard deviation (CSSD) and (Chang, 2000) CCK; after that, through cross-sectional absolute deviation (CSAD). The analysis of herding behavior under different market conditions, the bullish and bearish days analysis, and the joint analysis proposed (Chiang, Dazhi Zheng, 2010), Finally, as a joint analysis proposed (Lin Tan, Thomas C. Chiang, Joseph R. Mason, Edward Nelling,, 2008), demonstrate volatility differences with high and low volatility (Palak Dewan, Khushdeep Dharni, 2022). The study also examines whether asymmetric herd behavior in different market conditions.…”

Impact of liquidity spillovers among industrial sectors on stock markets during crisis periods: Evidence from the S&P 500 index

“…In financial markets, herding behavior refers to the process by which market participants deduce information from the behavior of previous participants ([ 76 ]). Therefore, some studies cite herding behavior to explore the spillover effects in financial markets ([ 77 – 79 ]). Based on this background, our primary findings are as follows: First, the total liquidity spillovers during the GFC and COVID-19 periods were higher than those in the full period, proving that sectors were more connected in liquidity aspects during the crises.…”