IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/18759.html
   My bibliography  Save this paper

Gold Returns

Author

Listed:
  • Robert J. Barro
  • Sanjay P. Misra

Abstract

From 1836 to 2011, the average real rate of price change for gold in the United States is 1.1% per year and the standard deviation is 13.1%, implying a one-standard-deviation confidence band for the mean of (0.1%, 2.1%). The covariances of gold's real rate of price change with consumption and GDP growth rates are small and statistically insignificantly different from zero. These negligible covariances suggest that gold's expected real rate of return--which includes an unobserved dividend yield--would be close to the risk-free rate, estimated to be around 1%. We study these properties within an asset-pricing model in which ordinary consumption and gold services are imperfect substitutes for the representative household. Disaster and other shocks impinge directly on consumption and GDP but not on stocks of gold. With a high elasticity of substitution between gold services and ordinary consumption, the model can generate a mean real rate of price change within the (0.1%, 2.1%) confidence band along with a small risk premium for gold. In this scenario, the bulk of gold's expected return corresponds to the unobserved dividend yield (the implicit rental income from holding gold) and only a small part comprises expected real price appreciation. Nevertheless, the uncertainty in gold returns is concentrated in the price-change component. The model can explain the time-varying volatility of real gold prices if preference shocks for gold services are small under the classical gold standard but large in other periods particularly because of shifting monetary roles for gold.

Suggested Citation

  • Robert J. Barro & Sanjay P. Misra, 2013. "Gold Returns," NBER Working Papers 18759, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18759
    Note: ME EFG AP PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w18759.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert J. Barro & Tao Jin, 2011. "On the Size Distribution of Macroeconomic Disasters," Econometrica, Econometric Society, vol. 79(5), pages 1567-1589, September.
    2. Philippe Weil, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(1), pages 29-42.
    3. Larry G. Epstein & Stanley E. Zin, 2013. "Substitution, risk aversion and the temporal behavior of consumption and asset returns: A theoretical framework," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 12, pages 207-239, World Scientific Publishing Co. Pte. Ltd..
    4. Barro, Robert J, 1979. "Money and the Price Level under the Gold Standard," Economic Journal, Royal Economic Society, vol. 89(353), pages 13-33, March.
    5. Robert J. Barro, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(3), pages 823-866.
    6. John Y. Campbell, 1986. "Bond and Stock Returns in a Simple Exchange Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 785-803.
    7. Philippe Jorion & William N. Goetzmann, 1999. "Global Stock Markets in the Twentieth Century," Journal of Finance, American Finance Association, vol. 54(3), pages 953-980, June.
    8. Xavier Gabaix, 2012. "Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(2), pages 645-700.
    9. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    10. Abel, Andrew B., 1999. "Risk premia and term premia in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 3-33, February.
    11. Rietz, Thomas A., 1988. "The equity risk premium a solution," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 117-131, July.
    12. Robert J. Barro, 2009. "Rare Disasters, Asset Prices, and Welfare Costs," American Economic Review, American Economic Association, vol. 99(1), pages 243-264, March.
    13. Robert J. Barro & José F. Ursúa, 2012. "Rare Macroeconomic Disasters," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 83-109, July.
    14. repec:bla:jfinan:v:59:y:2004:i:4:p:1481-1509 is not listed on IDEAS
    15. Robert J. Barro & Jose F. Ursua, 2008. "Macroeconomic Crises since 1870," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(1 (Spring), pages 255-350.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Harris, Richard D.F. & Shen, Jian, 2017. "The intrinsic value of gold: An exchange rate-free price index," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 203-217.
    2. Malliaris, A.G. & Malliaris, Mary, 2015. "What drives gold returns? A decision tree analysis," Finance Research Letters, Elsevier, vol. 13(C), pages 45-53.
    3. Halkos, George & Managi, Shunsuke & Zisiadou, Argyro, 2017. "Analyzing the determinants of terrorist attacks and their market reactions," Economic Analysis and Policy, Elsevier, vol. 54(C), pages 57-73.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robert Barro & Tao Jin, 2021. "Rare Events and Long-Run Risks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 1-25, January.
    2. Barro, Robert J. & Liao, Gordon Y., 2021. "Rare disaster probability and options pricing," Journal of Financial Economics, Elsevier, vol. 139(3), pages 750-769.
    3. Robert Barro & Tao Jin, 2021. "Rare Events and Long-Run Risks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 1-25, January.
    4. Isoré, Marlène & Szczerbowicz, Urszula, 2017. "Disaster risk and preference shifts in a New Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 97-125.
    5. Robert Barro, 2023. "r Minus g," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 1-17, April.
    6. Barro, Robert J. & Ursúa, José F., 2017. "Stock-market crashes and depressions," Research in Economics, Elsevier, vol. 71(3), pages 384-398.
    7. Robert J. Barro & José F. Ursúa, 2012. "Rare Macroeconomic Disasters," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 83-109, July.
    8. Jerry Tsai & Jessica A. Wachter, 2015. "Disaster Risk and its Implications for Asset Pricing," NBER Working Papers 20926, National Bureau of Economic Research, Inc.
    9. Sang Byung Seo & Jessica A. Wachter, 2019. "Option Prices in a Model with Stochastic Disaster Risk," Management Science, INFORMS, vol. 65(8), pages 3449-3469, August.
    10. Robert J. Barro, 2015. "Environmental Protection, Rare Disasters and Discount Rates," Economica, London School of Economics and Political Science, vol. 82(325), pages 1-23, January.
    11. repec:aei:rpaper:1008582820 is not listed on IDEAS
    12. Bai, Hang & Zhang, Lu, 2022. "Searching for the equity premium," Journal of Financial Economics, Elsevier, vol. 143(2), pages 897-926.
    13. Max Gillman & Michal Kejak & Michal Pakoš, 2015. "Learning about Rare Disasters: Implications For Consumption and Asset Prices," Review of Finance, European Finance Association, vol. 19(3), pages 1053-1104.
    14. Sergio Rebelo & Neng Wang & Jinqiang Yang, 2018. "Rare Disasters, Financial Development, and Sovereign Debt," NBER Working Papers 25031, National Bureau of Economic Research, Inc.
    15. Lewis, Karen K. & Liu, Edith X., 2017. "Disaster risk and asset returns: An international perspective," Journal of International Economics, Elsevier, vol. 108(S1), pages 42-58.
    16. Thomas Douenne, 2020. "Disaster Risks, Disaster Strikes, and Economic Growth: the Role of Preferences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 38, pages 251-272, October.
    17. Sönksen, Jantje & Grammig, Joachim, 2021. "Empirical asset pricing with multi-period disaster risk: A simulation-based approach," Journal of Econometrics, Elsevier, vol. 222(1), pages 805-832.
    18. Max Gillman & Michal Kejak & Michal Pakos, 2014. "Learning about Disaster Risk: Joint Implications for Consumption and Asset Prices," CERGE-EI Working Papers wp507, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    19. Bruno Ćorić & Vladimir Šimić, 2021. "Economic disasters and aggregate investment," Empirical Economics, Springer, vol. 61(6), pages 3087-3124, December.
    20. Masataka Suzuki, 2014. "Hidden persistent disasters and asset prices," Annals of Finance, Springer, vol. 10(3), pages 395-418, August.
    21. Sergio Rebelo & Neng Wang & Jinqiang Yang, 2022. "Rare Disasters, Financial Development, and Sovereign Debt," Journal of Finance, American Finance Association, vol. 77(5), pages 2719-2764, October.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18759. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.