What Is the Effect of Oil and Gas Markets (Spot/Futures) on Herding in BRICS? Recent Evidence (2007–2022)

Abstract

We investigate the effect of gas/oil markets (spot/futures) on herding in stock markets in BRICS over 15 years (2007–2022). We consider the effect(s) of crises (Global financial, European debt, COVID-19, and Russia–Ukraine war), bull/bearish energy markets, volatility, and speculation. The effect of gas and oil markets on herding in stock markets is minimal, and investors herd selectively during crises. Even during the ongoing Russia–Ukraine war, the effect of energy markets on herding in BRICS is minimal. Causality tests show that oil (spot/futures) Granger causes CSAD during COVID-19 only. Gas (spot/futures) has no effect. We also find that energy (spot/futures) market states (bearish/bullish) have no effect on herding in stock markets. Low volatility in energy markets can trigger herding (consistent with previous research in US, China) in all BRICS. Speculative activities during (non)crises appear to have minimal impact on herding. However, as the degree of intensity (volatility) in speculative activities increases in oil/gas, it causes herding in all countries (India is affected mostly), except Brazil. It is not the speculation activity per se in (non)crises that causes herding, but the intensity/volatility in speculation activity. Overall, oil/gas markets (especially gas markets) appear to have a smaller impact on herding than expected, contrary to public belief; however, as the intensity/volatility in speculative activities increases, then herding also increases, which is expected given the uncertainty that speculation causes.