Speculative Trading in the Gold Market

27 Pages Posted: 25 Oct 2012 Last revised: 23 Sep 2015

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Kristoffer J. Glover

University of Technology Sydney (UTS) - UTS Business School; Financial Research Network (FIRN)

Date Written: February 1, 2014

Abstract

In this paper we use a test developed by Phillips et al. (2011) to identify a bubble in the gold market. We find that the price of gold followed an explosive price process between 2002 and 2012 interrupted only briefly by the subprime crisis in 2008. We also provide a theoretical foundation for such bubble tests based on a behavioural model of heterogeneous agents and demonstrate that periods of explosive price behaviour are consistent with increased chartist activity in the gold market. The identification strategy yields economically intuitive results and is a simple alternative to using more complex estimation techniques commonly used in the heterogenous agents literature.

Keywords: speculation, gold, bubble, heterogeneous agents, chartists, explosive process

JEL Classification: C22, C51, G02

Suggested Citation

Baur, Dirk G. and Glover, Kristoffer J., Speculative Trading in the Gold Market (February 1, 2014). International Review of Financial Analysis, Vol. 39, May 2015, Available at SSRN: https://ssrn.com/abstract=2166636 or http://dx.doi.org/10.2139/ssrn.2166636

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Kristoffer J. Glover

University of Technology Sydney (UTS) - UTS Business School ( email )

Sydney
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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