Gold Price Forecasts in a Dynamic Model Averaging Framework – Have the Determinants Changed Over Time?

29 Pages Posted: 8 Feb 2015  

Dirk G. Baur

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

Joscha Beckmann

University of Duisburg-Essen - Department of Economics and Business Administration

Robert Czudaj

University of Duisburg-Essen

Date Written: September 6, 2014

Abstract

The price of gold is influenced by a wide range of local and global factors such as commodity prices, interest rates, inflation expectations, exchange rate changes and stock market volatility among others. Hence, forecasting the price of gold is a notoriously difficult task and the main problem a researcher faces is to select the relevant regressors at each point in time. This combination of model and parameter uncertainty is explicitly accounted for by Dynamic Model Averaging which allows both the forecasting model and the coefficients to change over time. Based on this framework, we systematically evaluate a large set of possible gold price determinants and use both the predictive likelihood and the mean squared error as a measure of the forecasting performance. We carefully assess which predictors are relevant for forecasting at different points in time through the posterior probability. Our findings show that (1) DMA improves forecasts compared to other frameworks and (2) provides clear evidence for the time-variation of gold price predictors.

Keywords: Bayesian econometrics; dynamic model averaging; forecasting; gold

JEL Classification: C32, G10, G15, F37

Suggested Citation

Baur, Dirk G. and Beckmann, Joscha and Czudaj, Robert, Gold Price Forecasts in a Dynamic Model Averaging Framework – Have the Determinants Changed Over Time? (September 6, 2014). Ruhr Economic Paper No. 506. Available at SSRN: https://ssrn.com/abstract=2561316 or http://dx.doi.org/10.2139/ssrn.2561316

Dirk G. Baur

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

Joscha Beckmann

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

Robert Czudaj (Contact Author)

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany
(0049) 201 183-3516 (Phone)
(0049) 201 183-3995 (Fax)

HOME PAGE: http://www.oek.wiwi.uni-due.de/en/team/robert-czudaj/

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