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Long-range dependence in returns and volatility of global gold market amid financial crises

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  • Omane-Adjepong, Maurice
  • Boako, Gideon

Abstract

Using sampled historical daily gold market data from 07-03-1985 to 06-01-2015, and building on a related work by Bentes (2016), this paper examines the presence of long-range dependence (LRD) in the world’s gold market returns and volatility, accounting for structural breaks. The sampled gold market data was divided into subsamples based on four global crises: the September 1992 collapse of the European Exchange Rate Mechanism (ERM), the Asian financial crisis of mid-1997, the Subprime meltdown of 2007, and the recent European sovereign debt crisis, which hit the world’s market with varying effects. LRD test was carried-out on the full-sample and subsample periods using three semiparametric methods—before and after adjusting for structural breaks. The results show insignificant evidence of LRD in gold returns. However, very diminutive evidence is found for periods characterized by financial/economic shocks, with no significant detections for post-shock periods. Collectively, this is indicative that the gold market is less speculative, and hence could be somehow less risky for hedging and portfolio diversification.

Suggested Citation

  • Omane-Adjepong, Maurice & Boako, Gideon, 2017. "Long-range dependence in returns and volatility of global gold market amid financial crises," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 472(C), pages 188-202.
    • Handle: RePEc:eee:phsmap:v:472:y:2017:i:c:p:188-202
    DOI: 10.1016/j.physa.2016.12.013
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    Cited by:

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    2. Omane-Adjepong, Maurice & Boako, Gidoen & Alagidede, Paul, 2018. "Modelling heterogeneous speculation in Ghana’s foreign exchange market: Evidence from ARFIMA-FIGARCH and Semi-Parametric methods," MPRA Paper 86617, University Library of Munich, Germany.
    3. Jiang, Wuhao & Wang, Kai & Lv, Yan & Guo, Jianfeng & Ni, Zhongjin & Ni, Yihua, 2020. "Time series based behavior pattern quantification analysis and prediction — A study on animal behavior," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
    4. Kuan-Min Wang & Thanh-Binh Nguyen Thi & Yuan-Ming Lee, 2021. "Is gold a safe haven for the dynamic risk of foreign exchange?," Future Business Journal, Springer, vol. 7(1), pages 1-17, December.

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    More about this item

    Keywords

    Long-range dependence; Gold returns; Financial crisis; Volatility; Structural breaks;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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