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The Prevalence, Sources, and Effects of Herding

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  • Naomi E. Boyd
  • Bahattin Büyükşahin
  • Michael S. Haigh
  • Jeffrey H. Harris

Abstract

We test the prevalence, sources and effects of herding among large speculative traders in thirty U.S. futures markets over 2004–2009. We find significant herding levels within the large trader category of managed money traders (hedge funds) who are known to have similar performance evaluation measures. Our results support for the notion that greater public information takes away incentives to herd. The number of traders and floor‐based markets are positively associated with herding, while trading volume and electronic trading are negatively related to herding. Notably, we find little evidence that herding by managed money traders serves to destabilize prices in futures markets. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:671–694, 2016

Suggested Citation

  • Naomi E. Boyd & Bahattin Büyükşahin & Michael S. Haigh & Jeffrey H. Harris, 2016. "The Prevalence, Sources, and Effects of Herding," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(7), pages 671-694, July.
    • Handle: RePEc:wly:jfutmk:v:36:y:2016:i:7:p:671-694
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    Cited by:

    1. Long, Shaobo & Guo, Jiaqi, 2022. "Infectious disease equity market volatility, geopolitical risk, speculation, and commodity returns: Comparative analysis of five epidemic outbreaks," Research in International Business and Finance, Elsevier, vol. 62(C).
    2. Batista Soares, David & Borocco, Etienne, 2022. "Rational destabilization in commodity markets," Journal of Commodity Markets, Elsevier, vol. 25(C).
    3. Zijian Shi & John Cartlidge, 2024. "Neural stochastic agent‐based limit order book simulation with neural point process and diffusion probabilistic model," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 31(2), June.
    4. David Batista Soares & Etienne Borocco, 2022. "Rational destabilization in commodity markets [Déstabilisation rationnelle des marchés de matières premières]," Post-Print hal-03256534, HAL.
    5. Raza, Syed Ali & Guesmi, Khaled & Belaid, Fateh & Shah, Nida, 2022. "Time-frequency causality and connectedness between oil price shocks and the world food prices," Research in International Business and Finance, Elsevier, vol. 62(C).
    6. Zainudin, Ahmad Danial & Mohamad, Azhar, 2021. "Financial contagion in the futures markets amidst global geo-economic events," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 288-308.
    7. Zijian Shi & John Cartlidge, 2023. "Neural Stochastic Agent-Based Limit Order Book Simulation: A Hybrid Methodology," Papers 2303.00080, arXiv.org.
    8. Boyd, Naomi E. & Harris, Jeffrey H. & Li, Bingxin, 2018. "An update on speculation and financialization in commodity markets," Journal of Commodity Markets, Elsevier, vol. 10(C), pages 91-104.
    9. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    10. Kumar, Ashish & Badhani, K.N. & Bouri, Elie & Saeed, Tareq, 2021. "Herding behavior in the commodity markets of the Asia-Pacific region," Finance Research Letters, Elsevier, vol. 41(C).

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