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Sentiment and asset price bubble in the precious metals markets

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  • Pan, Wei-Fong

Abstract

This study investigates the relationship between asset bubbles for precious metals and market sentiment from January 1990 to October 2017 using a newly developed recursive right-tailed unit root test. There is strong evidence of explosive behaviour towards gold and silver prices in 2008 and 2011 which corresponds to the last financial and European debt crises. After controlling other variables, the logistic regression model is used to find evidence to suggest that price bubbles tend to occur when the volatility index (VIX) level increases (decreasing confidence, and increasing fear). Thus, this study provides valuable insights for both policymakers and investors.

Suggested Citation

  • Pan, Wei-Fong, 2018. "Sentiment and asset price bubble in the precious metals markets," Finance Research Letters, Elsevier, vol. 26(C), pages 106-111.
    • Handle: RePEc:eee:finlet:v:26:y:2018:i:c:p:106-111
    DOI: 10.1016/j.frl.2017.12.012
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset price bubbles; Market sentiment; Supremum Augmented Dickey-Fuller; Gold;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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