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Forecasting the price of gold: An error correction approach

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  • Gangopadhyay, Kausik
  • Jangir, Abhishek
  • Sensarma, Rudra

Abstract

Gold prices in Indian market may be influenced by a multitude of factors such as investment decision, inflation hedge and consumption motives. Gold prices are modelled using a vector error correction model. We identify investment decision and inflation hedge as prime movers of the data. We also present out-of-sample forecasts of our model and the related properties.

Suggested Citation

  • Gangopadhyay, Kausik & Jangir, Abhishek & Sensarma, Rudra, 2015. "Forecasting the price of gold: An error correction approach," MPRA Paper 81066, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:81066
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    References listed on IDEAS

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    1. Reboredo, Juan C., 2013. "Is gold a safe haven or a hedge for the US dollar? Implications for risk management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2665-2676.
    2. Baur, Dirk G. & McDermott, Thomas K., 2010. "Is gold a safe haven? International evidence," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1886-1898, August.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Dipak Ghosh & Eric Levin & Robert E Wright & The Centre for Economic Policy Research, "undated". "Gold as an Inflation Hedge?," Working Papers Series 96/10, University of Stirling, Division of Economics.
    5. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
    6. Schwert, G William, 2002. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 5-17, January.
    7. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    8. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    9. Johansen, Soren, 1991. " A Bayesian Perspective on Inference from Macroeconomic Data: Comment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(2), pages 249-251.
    10. Capie, Forrest & Mills, Terence C. & Wood, Geoffrey, 2005. "Gold as a hedge against the dollar," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(4), pages 343-352, October.
    11. Reboredo, Juan C., 2013. "Is gold a hedge or safe haven against oil price movements?," Resources Policy, Elsevier, vol. 38(2), pages 130-137.
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    Cited by:

    1. Mustafa Tevfik KARTAL & Özer DEPREN & Serpil KILIC DEPREN, 2021. "Do Monetary Policy Measures Affect Foreign Exchange Rates during the COVID-19 Pandemic? Evidence from Turkey," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 15(2), pages 175-202.
    2. Perry Sadorsky, 2021. "Predicting Gold and Silver Price Direction Using Tree-Based Classifiers," JRFM, MDPI, vol. 14(5), pages 1-21, April.
    3. Bielak, Łukasz & Grzesiek, Aleksandra & Janczura, Joanna & Wyłomańska, Agnieszka, 2021. "Market risk factors analysis for an international mining company. Multi-dimensional, heavy-tailed-based modelling," Resources Policy, Elsevier, vol. 74(C).
    4. Krzysztof Drachal, 2018. "Some Novel Bayesian Model Combination Schemes: An Application to Commodities Prices," Sustainability, MDPI, vol. 10(8), pages 1-27, August.

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    More about this item

    Keywords

    Gold price; cointegration; vector error correction model; inflation hedge.;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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