30Jan 2017

PRICE VOLATILITY IN THE INDIAN GOLD SPOT MARKET: AN ECONOMETRIC ANALYSIS

  • Associate Professor, P.G Department of Commerce, Utkal University.
  • Asst. Professor, Global Institute of Management, Bhubaneswar, Odisha.
Crossref Cited-by Linking logo

  • Abstract
  • Keywords
  • References
  • Cite This Article as
  • Corresponding Author

The present paper is an effort to examine the price volatility in the gold spot market. A host of Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models are used to analyze and gain a better understanding of the volatility of gold prices. The result of the GARCH (1, 1) model depicts that around 85% of the information associated with gold price volatility is derived from the previous days forecast. While the EGARCH model describes downward movement in gold daily return volatility is followed by higher volatility, the TGARCH (1, 1) model signifies that both positive and negative shocks have the same effect on future gold price volatility. This study has implications for both practitioners and academic researchers interested in price volatility in the gold spot market.

  1. Acworth, W. 2012. “Annual Volume Survey: Volume Climbs 11.4% to 25 Billion Contracts Worldwide”, Futures Industry, March 2012, pp. 24-33.
  2. Aggarwal, R. and Sundararaghavan, P.S, (1987), “Efficiency of the silver futures market: An empirical analysis study using daily data”, Journal of Banking and Finance, vol. 11, no. 1, pp. 49-64.
  3. Allayannis, G. and Weston, J. P, (2001), “The Use of Foreign Currency Derivatives and Firm Market Value”, The Review of Financial Studies, vol. 14, no. 1, pp. 243-276.
  4. Alptekin,Volkan, Burcu,Guvenek and Melek, Acar, Boyacioglu, (2010), “Modeling volatility of the gold prices by using generalized autoregressive conditional heteroscedasticity method: The case of Turkey”, Journal of Academic Research in Economics, vol. 2, no. 2, pp. 197-212.
  5. Baillie, R. T, and Myers, R.J, (1991), “Bivariate GARCH Estimation of the Optimal Commodity Futures Hedge”, Journal of Applied Econometrics, vol. 6, pp. 109-124.
  6. Baur, Dirk, G, (2011), “Explanatory mining for gold: Contrasting evidence from simple and multiple regressions”, Elsevier journal, September 2011, Page 265-275.
  7. Bera, A. K, Garcia, P and Roh, J.S, (1997), “Estimation of Time-Varying Hedge Ratios for Corn and Soybeans: BGARCH and Random Coefficient Approaches”. OFOR paper number 97-06.
  8. Berkman, H, and Bradbury, M, (1996), “Empirical Evidence on the Corporate Use of Derivatives”. Financial Management, vol. 26, pp. 69-73.
  9. Bhanot, Karan, Martinez, Valeria, ZiNing and Yiuman, Tse, (2006), “Competition for Order Flow and Market Quality in the Gold and Silver Futures Markets”, Paper provided by College of Business, University of Texas at San Antonio in its series Working Paper, December 2006, with number 0036.
  10. Bollerslev, T, (1986), “Generalized Autoregressive Conditional Heteroskedasticity”, Journal of Econometrics, vol. 31, no. 3, pp. 307- 327.
  11. Bollerslev, T. 1990. ”Modelling the Coherence in the Short-Run Nominal Exchange Rates: A Multivariate Generalized ARCH Model”. The Review of Economics and Statistics, vol. 72, no. 3, pp. 498-505.
  12. Bordo, D. Michael, Dittmar, D. Robert, Gavin T.William, (2007), “Gold, Fiat Money, and Price Stability”, Berkeley Journal, January 2007, Page 26.
  13. Charles, Amelie, Darne, Olivier and Kim, Jae, (2014), \"Stock Return Predictability: Evaluation based on Prediction Intervals”, MPRA paper 70143, University Library of Munich, Germany.
  14. Chang, C.L, McAleer, M, and Tansuchat, R, (2011), “Crude Oil Hedging Strategies Using Dynamic Multivariate GARCH”. Energy Economics, vol.33, pp. 912-923.
  15. Chernyshoff, Natalia, David, S, Jacks, and Alan, M, Taylor, (2007), “Stuck on Gold: Real Exchange Rate Volatility and the Rise and Fall of the Gold Standard”, NBER Working Papers, No 11795.
  16. Ciner, C, (2001), “The relationship between gold and silver prices: A note”, Global Finance Journal, vol.12, pp.299-303.
  17. Coudert, Virginie and Raymond, Helene, (2011), “Gold and financial assets: Are there any safe havens in bear markets?”, Access Econ Journal, February 2011, pp.1613-1622.
  18. Crowder, W. J, and Hamed, A, (1993), “A Cointegration test for oil Futures Market Efficiency”, The Journal of Futures Markets, vol 13, no. 8, pp. 933-941.
  19. Demidova,Menzel, Nadeshda, and Heidorn, Thomas, (2007), “Gold in the investment portfolio”, Paper provided by Frankfurt School of Finance and Management, Working Paper Series number 87.
  20. Desquilbet, Baptiste Jean and Nenovsky, Nikolay, (2004), “Credibility and adjustment: gold standards versus currency boards”, William Davidson Institute, Working Papers, May 2004, Page 692.
  21. Elam, E, and Dixon, B, L, (1988), “Examining the Validity of a Test of Futures Market Efficiency”. Journal of Futures Market, vol. 8, no. 3, pp. 251-276.
  22. Engle, R, (2001), “GARCH 101: The Use of ARCH/GARCH Models in Applied Econometrics”. Journal of economic Perspectives, vol. 15, no. 4, pp. 157-168.
  23. Engle, R, F, (1982), “Autoregressive conditional heteroskedasticity with estimates of the variance of United Kingdom inflation”. Econometrica, vol. 50, no. 4, pp. 987–1007.
  24. Elder, J, and Serletis, A, (2012), “Oil Price Uncertainty”, Working paper, North Dakota State University.
  25. Erb, C, and Harvey, C, (2006), “The strategic and tactical value of commodity futures”, Financial Analysts Journal, Vol.62. no.2, pp. 69-97.
  26. Glosten, L, Jaganathan, R, and Runkle, D, (1993), “Relationship between the expected value and volatility of the nominal excess returns on stocks”, Journal of Finance, Vol. 48, pp.1779-1802.
  27. Kat, H, M, and Oomen, R, C, (2007), “What every investor should know about commodities”, Journal of Investment Management, Vol.5, pp. 1-25.
  28. Kearney, Adrienne, A, and Lombra, Raymond, E, (2009), “Gold and platinum: Toward solving the price puzzle”, Elsevier journal, August 2009, pp.884-892.
  29. Kearney, Adrienne, A, and Lombra, Raymond, E, (2008), “Non-neutral short-run effects of derivatives on gold prices”, Applied Financial Economics, vol. 18, no.12, pp.985-994.
  30. Lucey, Brian M. and Tully, Edel, (2006), “The evolving relationship between gold and silver during 1978-2002: evidence from a dynamic cointegration analysis: a note”, Applied Financial Economics, Vol. 2, no.1, pp. 47 – 53.
  31. Marzo, Massimiliano and Paolo, Zagaglia, (2010), “Gold and the U.S. Dollar: Tales from the Turmoil”, Working Paper Series from Rimini Centre for Economic Analysis.
  32. Nawaz, Ahmad and Moomal, Sara, (2012), “Volatility in Gold Price Returns: An Investigation from International Market”, Journal of Futures Market, vol. 38, no. 3, pp. 236-261.
  33. Nelson, D, B, (1991), “Conditional heteroskedasticity in asset returns: A new approach”, Econometrica, vol.59, 347-370.
  34. Park, S, Y, and Jei, S, Y, (2010), “Estimation and Hedging effectiveness of time varying hedge Ratio: Flexible Bivariate GARCH Approaches”. The Journal of Futures Markets, vol. 30, no. 1, pp. 71-99.
  35. Peter, J, W, N, Bird, (1985), “The weak form efficiency of the London Metal Exchange”, Applied Economics,  17, no. 4, pp. 571-587.
  36. Rajgobal, S, and Shevlin, T, (2002), “Empirical evidence on the relation between stock option compensation and risk taking”. Journal of Accounting and Economics, vol. 33, no. 2, pp. 146-171.
  37. Rogers, D, (2002), “Does Executive Portfolio Structure Affect Risk Management?: CEO risk-taking Incentives and Corporate Derivatives Usage”. Journal of Banking and Finance, vol. 26, pp. 271-295.
  38. Samal, Prava, Gouri and Swain, Kumar, Anil, (2014), “Wheather Castor seed futures market is efficient in price discovery? An econometric analysis”, The Utkal Business Review, The Journal of Business Studies,, Vol. XXVIII, no.2, pp. 77-98.
  39. Samal, Prava, Gouri and Swain, Kumar, Anil, (2015), “Market efficiency of agricultural commodity futures in India: A case of selected commodity derivatives traded on NCDEX during 2013”, International Journal of Business and Management Invention, Vol. 4, no.1, pp. 32-49.
  40. Smith, C, and Stulz, R, (1985), “The determinants of firms’ hedging policies”. Journal of Financial and Quantitative Analysis, vol. 20, no. 4, pp 391- 405.
  41. Solt, M,E, and Swanson, P,J, (1981), “On the efficiency of the markets for gold and silver”, Journal of Business, vol.54, no. 3, pp. 453-478.
  42. Switzer, L, N, and El-Khoury, M, (2007), “Extreme Volatility, Speculative Efficiency and The Hedging Effectiveness of the Futures Markets”, Journal of Futures Markets, vol. 27, no. 1, pp. 61-84.
  43. Tse, Y, K, and Tsui, A, K, C, (2002), “A Multivariate Generalized Autoregressive Conditional Heteroscedasticity Model With Time Varying Correlations”, Journal of Business & Economic Statistics, vol. 20, no. 3, pp. 351-362.
  44. Yang, J, Bessler, D, A, and Leatham, D, J, (2001), “Asset Storability and Price Discovery in Commodity Futures Markets: A New Look”, The Journal of Futures Markets, vol. 21, no. 3, pp. 279-300.
  45. Yang, W, and Allen, D, E, (2005), “Multivariate GARCH hedge Ratios and Hedging effectiveness in Australian Futures Markets”, Journal of Accounting and Finance, vol. 45, no. 2, pp. 301-321.

[Anil Kumar Swain and Gouri Prava Samal. (2017); PRICE VOLATILITY IN THE INDIAN GOLD SPOT MARKET: AN ECONOMETRIC ANALYSIS Int. J. of Adv. Res. 5 (Jan). 1932-1947] (ISSN 2320-5407). www.journalijar.com

Dr. Anil Kumar Swain
P.G. Department of Commerce

DOI:

Article DOI: 10.21474/IJAR01/2963      
DOI URL: https://dx.doi.org/10.21474/IJAR01/2963

Download Full Paper

Download PDF No. of Downloads: 30 | No. of Views: 115