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Speculative trading in the gold market

Author

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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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    References listed on IDEAS

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    Cited by:

    1. repec:bla:scotjp:v:66:y:2019:i:1:p:198-214 is not listed on IDEAS
    2. 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.
    3. 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.
    4. repec:eee:jocoma:v:13:y:2019:i:c:p:40-54 is not listed on IDEAS
    5. repec:spr:annopr:v:281:y:2019:i:1:d:10.1007_s10479-018-2849-4 is not listed on IDEAS
    6. repec:eee:intfin:v:56:y:2018:i:c:p:255-280 is not listed on IDEAS
    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. 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.
    9. 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.
    10. repec:eco:journ1:2017-03-8 is not listed on IDEAS
    11. 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.
    12. repec:taf:eurjfi:v:23:y:2017:i:14:p:1390-1413 is not listed on IDEAS
    13. repec:eee:finana:v:58:y:2018:i:c:p:117-131 is not listed on IDEAS

    More about this item

    Keywords

    Speculation; Gold; Bubble; Heterogeneous agents; Chartists; Explosive process;

    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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