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Parities and Spread Trading in Gold and Silver Markets: A Fractional Cointegration Analysis

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  • Shi-Miin Liu
  • Chih-Hsien Chou
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    Abstract

    This article tries to disclose true parity relationships between gold and silver prices using fractional cointegration analysis. Both gold-silver and silver-gold parities are slow-adjustment long-memory processes with a time-varying risk premium. Information exposed by the parities is extremely useful in relatively long-run spread trading in the precious metal markets. Significant riskless profits could be earned based on the general ECMs' forecasting of the changes of the futures and cash spreads between gold and silver. The performance problem of gold and silver markets as a whole, therefore, is obvious.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/0960310032000129626
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 13 (2003)
    Issue (Month): 12 ()
    Pages: 899-911

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    Handle: RePEc:taf:apfiec:v:13:y:2003:i:12:p:899-911

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    Web page: http://www.tandfonline.com/RAFE20

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    Cited by:
    1. Derek Bond & Michael J. Harrison & Edward J. O'Brien, 2005. "Testing for Long Memory and Nonlinear Time Series: A Demand for Money Study," Trinity Economics Papers tep20021, Trinity College Dublin, Department of Economics.
    2. Derek Bond & Michael J. Harrison & Edward J. O'Brien, 2007. "Demand for Money: A Study in Testing Time Series for Long Memory and Nonlinearity," The Economic and Social Review, Economic and Social Studies, vol. 38(1), pages 1-24.
    3. A. Khalifa & S. Hammoudeh & E. Otranto & S. Ramchander, 2012. "Volatility Transmission across Currency, Commodity and Equity Markets under Multi-Chain Regime Switching: Implications for Hedging and Portfolio Allocation," Working Paper CRENoS 201214, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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