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The effect of gold market speculation on REIT returns in South Africa: a behavioral perspective

Author

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  • Omokolade Akinsomi

    (University of Witwatersrand)

  • Mehmet Balcilar

    (Eastern Mediterranean University
    University of Pretoria
    IPAG Business School)

  • Rıza Demirer

    (Southern Illinois University Edwardsville)

  • Rangan Gupta

    (University of Pretoria
    IPAG Business School)

Abstract

This study provides novel insight to the evolution of herd behavior during crisis periods by relating the time-variation in investor herding to speculation in gold, an asset traditionally considered a safe haven during periods of market crisis. We find that higher level of speculation in gold significantly contributes to herding in the emerging South African real estate investment trust (REIT) market, particularly during the mid-2008 to 2011 period, matching the duration and aftermath of the global financial crisis. The evidence of herding in this market is in contrast to the static and two-regime model specifications that fail to detect herding, underscoring the significance of econometric specifications that directly track the time-variation in herd behavior. Our findings suggest that speculative activities in the gold market contain valuable information regarding market fundamentals that drive investor behavior in emerging markets and that regulators should monitor indicators of speculative activities in gold in order to implement circuit breakers in their markets that may help mitigate the negative effects of herd behavior.

Suggested Citation

  • Omokolade Akinsomi & Mehmet Balcilar & Rıza Demirer & Rangan Gupta, 2017. "The effect of gold market speculation on REIT returns in South Africa: a behavioral perspective," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(4), pages 774-793, October.
  • Handle: RePEc:spr:jecfin:v:41:y:2017:i:4:d:10.1007_s12197-016-9381-7
    DOI: 10.1007/s12197-016-9381-7
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    Cited by:

    1. Esin Cakan & Riza Demirer & Rangan Gupta & Josine Uwilingiye, 2019. "Economic Policy Uncertainty and Herding Behavior Evidence from the South African Housing Market," Advances in Decision Sciences, Asia University, Taiwan, vol. 23(1), pages 88-113, March.
    2. Balcilar, Mehmet & Bonato, Matteo & Demirer, Riza & Gupta, Rangan, 2018. "Geopolitical risks and stock market dynamics of the BRICS," Economic Systems, Elsevier, vol. 42(2), pages 295-306.
    3. Marfatia, Hardik A. & Gupta, Rangan & Cakan, Esin, 2017. "The international REIT’s time-varying response to the U.S. monetary policy and macroeconomic surprises," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 640-653.
    4. Kola Ijasan & George Tweneboah & Maurice Omane-Adjepong & Peterson Owusu Junior, 2019. "On the global integration of REITs market returns: A multiresolution analysis," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1690211-169, January.
    5. Omokolade Akinsomi & Yener Coskun & Rangan Gupta & Chi Keung Marco Lau, 2016. "Impact of Volatility and Equity Market Uncertainty on Herd Behavior: Evidence from UK REITs," Working Papers 201688, University of Pretoria, Department of Economics.
    6. Ji, Qiang & Marfatia, Hardik & Gupta, Rangan, 2018. "Information spillover across international real estate investment trusts: Evidence from an entropy-based network analysis," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 103-113.
    7. Li, Sufang & Xu, Qiufan & Lv, Yixue & Yuan, Di, 2022. "Public attention, oil and gold markets during the COVID-19: Evidence from time-frequency analysis," Resources Policy, Elsevier, vol. 78(C).
    8. Elie Bouri & Rangan Gupta & Shixuan Wang, 2019. "Contagion between Stock and Real Estate Markets: International Evidence from a Local Gaussian Correlation Approach," Working Papers 201917, University of Pretoria, Department of Economics.
    9. Kola Ijasan & Peterson Owusu Junior & George Tweneboah & Tunbosun Oyedokun & Anokye M. Adam, 2021. "Analysing the relationship between global REITs and exchange rates: Fresh evidence from frequency-based quantile regressions," Advances in Decision Sciences, Asia University, Taiwan, vol. 25(3), pages 58-91, September.
    10. Pierdzioch, Christian & Risse, Marian & Gupta, Rangan & Nyakabawo, Wendy, 2019. "On REIT returns and (un-)expected inflation: Empirical evidence based on Bayesian additive regression trees," Finance Research Letters, Elsevier, vol. 30(C), pages 160-169.
    11. Hanif, Waqas & Andraz, Jorge Miguel & Gubareva, Mariya & Teplova, Tamara, 2024. "Are REITS hedge or safe haven against oil price fall?," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1-16.
    12. Chan, Kam C. & Chan, Leo H. & Nguyen, Chi M., 2020. "Forecasting oil futures market volatility in a financialized world: Why speculative activities matter," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    13. Charteris, Ailie & Kallinterakis, Vasileios, 2021. "Feedback trading in retail-dominated assets: Evidence from the gold bullion coin market," International Review of Financial Analysis, Elsevier, vol. 75(C).
    14. Liu, Jian & Chen, Yan & Liao, Shufei & Cheng, Cheng & Fu, Yongge, 2023. "Information spillovers in Hong Kong REITs and related asset markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 215-229.
    15. Elie Bouri & Rangan Gupta & Shixuan Wang, 2022. "Nonlinear contagion between stock and real estate markets: International evidence from a local Gaussian correlation approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2089-2109, April.
    16. Geoffrey M. Ngene & Rangan Gupta, 2021. "Impact of Housing Policy Uncertainty on Herding Behavior: Evidence from UK's Regional Housing Markets," Working Papers 202115, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Gold; Speculative ratio; Investor herding; Markov-switching; Time-varying parameters; REITs; South Africa;
    All these keywords.

    JEL classification:

    • 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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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