The Financial Review 43 (2008) 461--476 Do Commodity Traders Herd? Bahram Adrangi ∗ and Arjun Chatrath University of Portland Abstract We test for herding using data on aggregate trader positions for four commodities over 20 years. We show that while the positions of commodity traders are highly related, the relat- edness falls short of herding. The cross-commodity relatedness in trader positions is almost entirely explained by common demand and supply factors. Keywords: commodity comovement, herding, speculation JEL Classifications: E32, G10, G14, Q11, O13 1. Introduction Traders in commodity markets are thought to frequently conform to the actions of other traders rather than using the information available to them. For instance, in the absence of significant new information, the financial press commonly reports on the sentiment of the day—that the bears (or bulls) collectively dominated the trading across many commodities. The implication appears to be that commodities speculators have a tendency to follow the crowd, that is, to herd. 1 ∗ Corresponding author: Pamplin School of Business, University of Portland, 5000 N. Willamette Blvd, Portland, OR 97203; Phone: (503) 943-7220; Fax: (503) 943-8041; E-mail: adrangi@up.edu We thank two anonymous referees for their constructive comments. Our special gratitude goes to Arnold Cowan (the editor) for his detailed and helpful comments throughout the review process. Remaining errors are our responsibility. 1 The term, herding, is used in different ways in the literature. In a common definition, herding in financial markets occurs when traders buy or sell the same asset without economic justification (Avery and Zemsky, 1998). In another definition, herding occurs when several traders buy or sell within a general asset class (Sias, 2004). Studies report herding in corporate investing (Scharfstein and Stein, 2003), the adoption of technology (Kislev and Shchori-Bachrach, 1973) and earnings forecasts (Welch, 2000). C  2008, The Eastern Finance Association 461