Detection and Estimation of Herd Behavior in Futures Market

Abstract

With the rapid development of Chinese commodity futures markets and the financialization problem during recent times, there are lots of price rises and drops which can be described as herd behavior in our commodity futures market. Herd behavior and its impact on futures returns are attractive topics in behavioral finance. The basic motivation of this project is to study the interactions between herd behavior and futures returns. Various models are implemented to analysis the herd behavior. We find that there exists significant herd behavior in metal future market and the financialization can aggravates the herd behavior. However, there is no obvious herd behavior in agricultural futures market.