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Sentiment and asset price bubble in the precious metals markets

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  • Pan, Wei-Fong

Abstract

This study investigates the relationship between asset bubbles for precious metals and market sentiment from January 1990 to October 2017 using a newly developed recursive right-tailed unit root test. There is strong evidence of explosive behaviour towards gold and silver prices in 2008 and 2011 which corresponds to the last financial and European debt crises. After controlling other variables, the logistic regression model is used to find evidence to suggest that price bubbles tend to occur when the volatility index (VIX) level increases (decreasing confidence, and increasing fear). Thus, this study provides valuable insights for both policymakers and investors.

Suggested Citation

  • Pan, Wei-Fong, 2018. "Sentiment and asset price bubble in the precious metals markets," Finance Research Letters, Elsevier, vol. 26(C), pages 106-111.
    • Handle: RePEc:eee:finlet:v:26:y:2018:i:c:p:106-111
    DOI: 10.1016/j.frl.2017.12.012
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    6. Aktham Maghyereh & Hussein Abdoh, 2022. "Bubble contagion effect between the main precious metals," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 40(1), pages 43-63, March.
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    8. Chi-Wei Su & Xu-Yu Cai & Ran Tao, 2020. "Can Stock Investor Sentiment Be Contagious in China?," Sustainability, MDPI, vol. 12(4), pages 1-16, February.
    9. Aktham Maghyereh & Hussein Abdoh, 2022. "Can news-based economic sentiment predict bubbles in precious metal markets?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-29, December.
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    11. Ma, Richie Ruchuan & Xiong, Tao, 2021. "Price explosiveness in nonferrous metal futures markets," Economic Modelling, Elsevier, vol. 94(C), pages 75-90.
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    13. Ye Chen & Jian Li & Qiyuan Li, 2023. "Seemingly Unrelated Regression Estimation for VAR Models with Explosive Roots," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(4), pages 910-937, August.
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    More about this item

    Keywords

    Asset price bubbles; Market sentiment; Supremum Augmented Dickey-Fuller; Gold;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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