Metal Investments: Distrust Killer or Inflation Hedging?

29 Pages Posted: 25 Aug 2011 Last revised: 19 Aug 2012

See all articles by Ghulame Rubbaniy

Ghulame Rubbaniy

Zayed University - College of Business

Ken Ting Lee

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: August 24, 2011

Abstract

This study investigates long run metals properties using the extended version of Mccown and Zimmerman (2006) multifactor CAPM-model. By adding extra explanatory variables we improve the explanation power of the existing model in terms of R-squared. Taking German invertors’ perspective and using prices of gold, silver and platinum over the period 1985-2010, our findings show that metals are true zero market beta assets. We further show that the determinants of metal prices are dependent on market conditions reflected by different betas for stable and crisis periods. The inclusion of a new variable, economic sentiment index in the models shows explanation power for gold. Its significant negative effect reveals gold position as a safe haven in times of distrust. Our results show that gold is the only metal co-integrated with the consumer price index (CPI) of Germany, thus the only metal providing inflation hedging to the German investor in the long run. Our results are consistent with the theories that metals provide long term hedge against unemployment.

Keywords: Asset Pricing, Financial crises, Econometric models, Behavioral finance

JEL Classification: C5, E3, G1, G01

Suggested Citation

Rubbaniy, Ghulame and Lee, Ken Ting and Verschoor, Willem F. C., Metal Investments: Distrust Killer or Inflation Hedging? (August 24, 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1916283 or http://dx.doi.org/10.2139/ssrn.1916283

Ghulame Rubbaniy (Contact Author)

Zayed University - College of Business ( email )

Zayed University
P.O. Box 144534
Abu Dhabi
United Arab Emirates

Ken Ting Lee

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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