Herding and spillover effects in the Indian commodity futures market

Palak Dewan and Khushdeep Dharni

Journal of Agribusiness in Developing and Emerging Economies, 2022, vol. 13, issue 5, 748-761

Abstract: Purpose - The 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/approach - The study adapts the cross-sectional absolute deviation model given by Changet al. (2000) to examine herding in Indian stock and commodity futures markets. Findings - The 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/implications - The results can help market participants to diversify the risk by investing in agricultural, metal and energy futures along with the stocks. Originality/value - Majority 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.

Keywords: Behavioral bias; Herding behavior; Spillover effects; Commodities (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jadeep:jadee-11-2021-0288

DOI: 10.1108/JADEE-11-2021-0288

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