RT Report
T1 Herding, Information Cascades and Volatility Spillovers in Futures Markets
A1 McAleer, Michael
A1 Radalj, Kim
AB Economists and financial analysts have begun to recognise the importance of the actions of other agents in the decision-making process. Herding is the deliberate mimicking of the decisions of other agents. Examples of mimicry range from the choice of restaurant, fashion and financial market participants, to academic research. Herding may conjure negative images of irrational agents sheepishly following the actions of others, but such actions can be rational under asymmetric information and uncertainty. This paper uses futures position data in nine different markets of the Commodity Futures Trading Commission (CFTC) to provide a direct test of herding behaviour, namely the extent to which small traders mimic the positions of large speculators. Evidence consistent with herding among small traders is found for the Canadian dollar, British pound, gold, S&P 500 and Nikkei 225 futures. Consistent with survey-based results on technical analysis, the positions are significantly correlated with both current and past market returns. Using various time-varying volatility models to accommodate conditional heteroskedasticity, the empirical results are found to be robust to alternative models and methods of estimation. When a test of causality-in-variance is used to analyse if volatility among small traders spills over into spot markets, it is found that spillovers occur only with Nikkei 225 futures. The policy implications of the findings are also discussed.
YR 2013
FD 2013-07
LK https://hdl.handle.net/20.500.14352/41493
UL https://hdl.handle.net/20.500.14352/41493
LA eng
NO JEL Classification: D82, D84, G12, G14.Revised: June 2013.The authors are most grateful to Felix Chan for helpful discussions. For financial support, the first author wishes to thank the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science. The second author wishes to acknowledge the financial assistance of a Hackett Postgraduate Scholarship at the University of Western Australia.
DS Docta Complutense
RD 21 abr 2025