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


  • Shi-Miin Liu
  • Chih-Hsien Chou


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.

Suggested Citation

  • Shi-Miin Liu & Chih-Hsien Chou, 2003. "Parities and Spread Trading in Gold and Silver Markets: A Fractional Cointegration Analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 13(12), pages 899-911.
  • Handle: RePEc:taf:apfiec:v:13:y:2003:i:12:p:899-911 DOI: 10.1080/0960310032000129626

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    References listed on IDEAS

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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. Dirk Baur & Duy Tran, 2014. "The long-run relationship of gold and silver and the influence of bubbles and financial crises," Empirical Economics, Springer, vol. 47(4), pages 1525-1541, December.
    3. Krauss, Christopher, 2015. "Statistical arbitrage pairs trading strategies: Review and outlook," FAU Discussion Papers in Economics 09/2015, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    4. 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.
    5. 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.
    6. repec:eee:finana:v:52:y:2017:i:c:p:292-308 is not listed on IDEAS
    7. 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.
    8. 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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