Do Oil Prices and Financial Indicators Drive the Herding Behavior in Commodity Markets?

This study tests the presence of herding behavior in commodity markets (energy, industrial metals, precious metals, grains food, and livestock) from a constant and time-varying perspective. Additionally, we investigate whether oil prices and major financial indicators drive herding in these markets. Using daily data over the period 2003-2017, the constant model based on the cross-sectional absolute deviation model suggests no herding in any of the commodity sectors. However, using a time-varying approach, results reveal the existence of herding in almost all sectors, mainly during and after the global financial crisis. Furthermore, the oil price contributes significantly to herding among investors in the energy sector. We also find that the major exchange rate contributes to herding only for industrial metals sectors during a very limited period. Moreover, the US stock market also has a limited contribution to herding in the energy and the industrial metals sectors.