Examining the efficiency and herding behavior of commodity markets using multifractal detrended fluctuation analysis. Empirical evidence from energy, agriculture, and metal markets

Abstract

We examine the efficiency and herding behavior between four energy markets (Crude, Brent, Gasoline, and Natural gas), five agriculture markets (Corn, Wheat, Soybeans, Cocoa, and Coffee), and three metal markets (Gold, Silver, and Copper) using multifractal detrended fluctuation method. In addition to the full sample, the analysis also uses two most critical sub-periods of GFC 2007-09 and COVID-19 to reveal hidden features and herding patterns of the commodity markets. The results indicate existence of strong multifractality patterns and resultant inefficiency with varied degrees in the commodity markets. We find highest inefficiency in the copper market, followed by silver market. While cocoa remains most efficient commodity market during the entire period of study. In addition, energy markets remain more efficient compared to the rest of the two groups. Furthermore, the results confirm that crises events impact the efficiency of commodity markets significantly, and persistence behavior with a trace of herding is found in some of the markets. Whereas, silver and gold serve as useful hedging instruments during the crises. Our study is useful for risk management, regulatory supervision, and effective decision making for investors related to investments in the commodity markets.