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An Empirical Analysis of Australian Gold Mining Firms

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Abstract

This paper studies the exposure of Australian gold-mining firms to changes in the gold price, the stock market and the Australian dollar - US dollar exchange rate. The empirical analysis uses daily, weekly and monthly data of all gold-mining firms in the S&P/ASX All Ordinaries Gold Index for the period from January 1980 to December 2010 and finds that the average gold beta is 0.67 for gold denominated in US dollar and 0.38 for gold denominated in Australian dollars. The study also finds substantial variation of gold betas through time which indicates managerial flexibility and real optionality. Interestingly, the average exposure of the firms decreased in the recent gold bull market reducing the attractiveness of gold-mining firms relative to investments in bullion.

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File URL: http://www.finance.uts.edu.au/research/wpapers/wp171.pdf
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Paper provided by Finance Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 171.

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Length: 35
Date of creation: 01 Aug 2012
Date of revision:
Handle: RePEc:uts:wpaper:171

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Keywords: gold; gold-mining stocks; asymmetric payoff; real options; exchange-traded funds;

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  1. Adam, Tim, 2009. "Capital expenditures, financial constraints, and the use of options," Journal of Financial Economics, Elsevier, vol. 92(2), pages 238-251, May.
  2. Lubos Pástor & Robert F. Stambaugh, . "Costs of Equity Capital and Model Mispricing," Rodney L. White Center for Financial Research Working Papers 4-98, Wharton School Rodney L. White Center for Financial Research.
  3. Garry Twite, 2002. "Gold Prices, Exchange Rates, Gold Stocks and the Gold Premium," Australian Journal of Management, Australian School of Business, vol. 27(2), pages 123-140, December.
  4. Alberto Moel, 2002. "When Are Real Options Exercised? An Empirical Study of Mine Closings," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 35-64, March.
  5. Tufano, Peter, 1996. " Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 51(4), pages 1097-1137, September.
  6. Les Coleman, 2010. "The price gold shareholders place on market risks," Applied Financial Economics, Taylor & Francis Journals, vol. 20(10), pages 795-802.
  7. Peter Tufano, 1998. "The Determinants of Stock Price Exposure: Financial Engineering and the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 53(3), pages 1015-1052, 06.
  8. Blose, Laurence E. & Shieh, Joseph C. P., 1995. "The impact of gold price on the value of gold mining stock," Review of Financial Economics, Elsevier, vol. 4(2), pages 125-139.
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