Template-type: ReDIF-Paper 1.0
Author-Name: Michael McAleer
Author-Person: pmc90 
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute,
	The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of
	Economic Research, Kyoto University. 
Author-Name: Kim Radalj 
Author-Workplace-Name: Department of Economics, University of Western Australia
Title: Herding, Information Cascades and Volatility Spillovers in Futures Markets
Abstract: 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.
Classification-JEL: D82, D84, G12, G14.
Keywords: Herding, Speculation, Hedging, Noise traders, Currency and commodity markets, Futures and spot markets, 
	Time-varying volatility, Causality-in-variance, Spillovers.

Note: 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.
Length: 47 pages 
Creation-Date: 2013-06  
Number: 2013-25 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1325.txt
File-URL: https://eprints.ucm.es/id/eprint/22181/1/1325.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1325