The Prevalence, Sources, and Effects of Herding

We test the prevalence, sources and effects of herding among large speculative traders in thirty U.S. futures markets over 2004-2009. We find significant herding levels within the large trader category of managed money traders (hedge funds) who are known to have similar performance evaluation measures. Our results support for the notion that greater public information takes away incentives to herd. The number of traders and floor-based markets are positively associated with herding, while trading volume and electronic trading are negatively related to herding. Notably, we find little evidence that herding by managed money traders serves to destabilize prices in futures markets. (c) 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:671-694, 2016