Risk Premia in Gold Lease Rates

41 Pages Posted: 20 Mar 2013 Last revised: 31 Oct 2013

See all articles by Anh Le

Anh Le

Penn State University Smeal College of Business

Haoxiang Zhu

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: October 21, 2013

Abstract

Gold is an important global reserve asset, widely held by the official sector and private investors. In this paper, we study a measure of the opportunity costs of holding gold, the gold lease rates -- interests paid in gold for borrowing gold. Gold lease rates are economically significant in magnitude and display substantial variations over time. Using a term structure model with "unspanned" risk factors, we find that risk premia in gold lease rates are highly time-varying and strongly increasing in the level and slope of gold lease rates, as well as in gold volatility. Expected excess returns of "gold bonds" are mostly positive, suggesting that they are perceived as risky investments.

Keywords: gold lease rates, risk premia, term structure, unspanned risk

JEL Classification: G12

Suggested Citation

Le, Anh and Zhu, Haoxiang, Risk Premia in Gold Lease Rates (October 21, 2013). UNC Kenan-Flagler Research Paper No. 2013-16, Finance Down Under 2014 Building on the Best from the Cellars of Finance, Available at SSRN: https://ssrn.com/abstract=2235840 or http://dx.doi.org/10.2139/ssrn.2235840

Anh Le

Penn State University Smeal College of Business ( email )

Business Building
University Park, PA 16801
United States

Haoxiang Zhu (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street E62-623
Cambridge, MA 02142
United States

HOME PAGE: http://www.mit.edu/~zhuh

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

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