Do Commodities Herd? Evidence from a Time-Varying Stochastic Volatility Model

Vassilios Babalos, Stavros Stavroyiannis () and Rangan Gupta
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Stavros Stavroyiannis: Department of Accounting & Finance, Technological Educational Institute of Peloponnese, Greece.

No 201554, Working Papers from University of Pretoria, Department of Economics

Abstract: Commodities markets due to their unique characteristics as diversification tools have recently garnered investors’ attention especially through the development of commodity index financial products. This financialization process that started in the early 2000s and escalated after 2004 has precipitated price comovements among various types of commodities creating a proper setting for the examination of herding behavior. Employing a comprehensive dataset of investable commodities indices we examine the existence of herding behavior via static and time varying models. Our findings reveal a non significant anti herding behavior according to static model that is reversed when time varying models are in place. In particular the rolling window analysis reveals interesting patterns of the herding phenomenon. These behavioral patterns are corroborated through a time varying stochastic volatility model. Our results contain significant implications for investors, commodities producers and policy makers.

Keywords: commodities; herding; time varying stochastic volatility (search for similar items in EconPapers)
JEL-codes: Q02 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2015-07
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201554

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