Abstract
This paper presents a different insight into the research literature on herding behaviour in an emerging market as an economic phenomenon. In particular, this study evaluates herding behaviour within the South African market. It also establishes the relationship of this commodity-rich country by examining the effects of herd behaviour after controlling of six major commodity global factors. Included is an examination of the risk effect of COVID-19 pandemic on herding behaviour during a time of high market volatility. The regime-switching analysis is used to propose a dynamic herd behaviour under two market regimes (low and high volatility) by analysing daily data from 2012 to 2022.
While the results yield no indication of herd behaviour through low and high volatility regimes, the empirical results do, however, indicate conflicting results after the addition of a transition commodity variable such as corn. This, therefore, suggests the market shows signs of herd behaviour in that corn contributes to herd behaviour in high volatility states. In addition, the study shows gold, platinum, crude oil, wheat and soybean commodities do not contribute to herd behaviour within the South African market.
The findings show fact that certain global commodity market factors contain valuable information concerning some of the fundamentals that influence behaviour in emerging markets. Further research is important to test if similar results will be found in other emerging markets.
Key Words: Commodities; COVID-19; Emerging market; Herding behaviour; Market Efficiency; Smooth Transition Regime Switching.