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Nonlinear Dynamics of International Gold Prices: Conditional Heteroskedasticity or Chaos?

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  • Huang Xiaowei

    (The School of Banking and Finance, University of International Business and Economics, Beijing100029, China)

  • Yu Mei

    (The School of Banking and Finance, University of International Business and Economics, Beijing100029, China)

  • Ban Chengwei

    (Guanghua School of Management, Peking University, Beijing100871, China)

Abstract

Taking the special nonlinear characteristics of the domestic and international gold price into account, this paper systematically analyzed its nonlinearity by the methods of BDS test, R/S analysis and improved largest Lyapunov exponent. We find three main results: (1) ARMA-GARCH model could adequately explain the linear and nonlinear dependence of gold price series; (2) long-memory does not exist anymore in price series explained by ARMA-GARCH model; (3) chaos phenomenon which is sensitive to the initial value does not exist either in the residuals of regression model. Therefore, we believe that the nonlinearity of gold price is mainly characterized in conditional heteroscedasticity rather than chaos.

Suggested Citation

  • Huang Xiaowei & Yu Mei & Ban Chengwei, 2014. "Nonlinear Dynamics of International Gold Prices: Conditional Heteroskedasticity or Chaos?," Journal of Systems Science and Information, De Gruyter, vol. 2(5), pages 411-427, October.
    • Handle: RePEc:bpj:jossai:v:2:y:2014:i:5:p:411-427:n:3
    DOI: 10.1515/JSSI-2014-0411
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    References listed on IDEAS

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    3. Seung‐Ryong Yang & B. Wade Brorsen, 1993. "Nonlinear dynamics of daily futures prices: Conditional heteroskedasticity or chaos?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(2), pages 175-191, April.
    4. Murray Frank & Thanasis Stengos, 1989. "Measuring the Strangeness of Gold and Silver Rates of Return," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(4), pages 553-567.
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