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Speculative trading in the gold market

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  • Baur, Dirk G.
  • Glover, Kristoffer J.

Abstract

In this paper we use a recently developed econometric test to identify bubble-like price behaviour in the gold market. We find that the price of gold followed an explosive price process between 2002 and 2012 and exhibited super-exponential growth between 2002 and 2008, indicating excessive speculative trading and exuberance in the gold market. We also provide a theoretical foundation for such bubble tests based on a behavioural model in which chartists can cause episodes of explosive price dynamics.The identification strategy yields economically intuitive results and is a simple alternative to using more complex estimation techniques commonly used in the heterogeneous agents literature.

Suggested Citation

  • Baur, Dirk G. & Glover, Kristoffer J., 2015. "Speculative trading in the gold market," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 63-71.
    • Handle: RePEc:eee:finana:v:39:y:2015:i:c:p:63-71
    DOI: 10.1016/j.irfa.2015.02.004
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    Cited by:

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    2. Thi Hong Van Hoang & Amine Lahiani & David Heller, 2016. "Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach," Post-Print hal-02012307, HAL.
    3. Bariviera, Aurelio F. & Font-Ferrer, Alejandro & Sorrosal-Forradellas, M. Teresa & Rosso, Osvaldo A., 2019. "An information theory perspective on the informational efficiency of gold price," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    4. Algieri, Bernardina & Leccadito, Arturo, 2019. "Price volatility and speculative activities in futures commodity markets: A combination of combinations of p-values test," Journal of Commodity Markets, Elsevier, vol. 13(C), pages 40-54.
    5. Yingyi Hu, 2019. "Short-horizon market efficiency, order imbalance, and speculative trading: evidence from the Chinese stock market," Annals of Operations Research, Springer, vol. 281(1), pages 253-274, October.
    6. Junttila, Juha & Pesonen, Juho & Raatikainen, Juhani, 2018. "Commodity market based hedging against stock market risk in times of financial crisis: The case of crude oil and gold," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 56(C), pages 255-280.
    7. Pierdzioch, Christian & Risse, Marian & Rohloff, Sebastian, 2015. "Cointegration of the prices of gold and silver: RALS-based evidence," Finance Research Letters, Elsevier, vol. 15(C), pages 133-137.
    8. Giulio Cifarelli and Paolo Paesani, 2021. "Navigating the Oil Bubble: A Non-linear Heterogeneous-agent Dynamic Model of Futures Oil Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    9. O'Connor, Fergal A. & Lucey, Brian M. & Batten, Jonathan A. & Baur, Dirk G., 2015. "The financial economics of gold — A survey," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 186-205.
    10. Chien-Hung Chen & Nicholas Lee & Fu-Min Chang & Li-Peng Lan, 2021. "Are global gold futures returns volatilities and trading activities threshold cointegrated?," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 13(5), pages 525-538, May.
    11. Memet Agustiar & Fariastuti Djafar & Afrizal, 2017. "Construction of an Optimum Currency Area Index Anchored to the Gold Dinar: The Case of Selected Islamic Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 51-56.
    12. Andrew Urquhart, 2017. "How predictable are precious metal returns?," The European Journal of Finance, Taylor & Francis Journals, vol. 23(14), pages 1390-1413, November.
    13. Michael Murach, 2019. "Global Determinants of the Gold Price: A Multivariate Cointegration Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(1), pages 198-214, February.
    14. Hoang, Thi Hong Van & Lahiani, Amine & Heller, David, 2016. "Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach," Economic Modelling, Elsevier, vol. 54(C), pages 54-66.
    15. Figuerola-Ferretti, Isabel & McCrorie, J. Roderick, 2016. "The shine of precious metals around the global financial crisis," Journal of Empirical Finance, Elsevier, vol. 38(PB), pages 717-738.
    16. Baur, Dirk G. & Dichtl, Hubert & Drobetz, Wolfgang & Wendt, Viktoria-Sophie, 2020. "Investing in gold – Market timing or buy-and-hold?," International Review of Financial Analysis, Elsevier, vol. 71(C).
    17. Jinsha Zhao, 2022. "Do economic crises cause trading in Bitcoin?," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 14(4), pages 465-490, April.
    18. He, Qing & Guo, Yongxiu & Yu, Jishuang, 2020. "Nonlinear dynamics of gold and the dollar," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    19. Charteris, Ailie & Kallinterakis, Vasileios, 2021. "Feedback trading in retail-dominated assets: Evidence from the gold bullion coin market," International Review of Financial Analysis, Elsevier, vol. 75(C).
    20. Tolhurst, Tor N., 2018. "A Model-Free Bubble Detection Method: Application to the World Market for Superstar Wines," 2018 Annual Meeting, August 5-7, Washington, D.C. 274387, Agricultural and Applied Economics Association.
    21. Yang, Lu & Cui, Xue & Yang, Lei & Hamori, Shigeyuki & Cai, Xiaojing, 2023. "Risk spillover from international financial markets and China's macro-economy: A MIDAS-CoVaR-QR model," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 55-69.
    22. Schmidbauer, Harald & Rösch, Angi, 2018. "The impact of festivities on gold price expectation and volatility," International Review of Financial Analysis, Elsevier, vol. 58(C), pages 117-131.

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    More about this item

    Keywords

    Speculation; Gold; Bubble; Heterogeneous agents; Chartists; Explosive process;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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