IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v13y2013i4p561-570.html
   My bibliography  Save this article

The structure of gold and silver spread returns

Author

Listed:
  • Jonathan A. Batten
  • Cetin Ciner
  • Brian M. Lucey
  • Peter G. Szilagyi

Abstract

The price dynamics of gold and silver have long been a matter of popular concern and fascination. The objective of this study is to investigate the dynamics of the bivariate relationship between gold and silver prices. First, we investigate the spread, measured as the price difference between gold and silver trading as a futures contract. Then the presence of a fractal structure is measured using statistical techniques based on rescaled range analysis after accommodating short-term autocorrelated innovations in the return process. To highlight the economic consequences of fractality, we apply trading rules based upon the Hurst coefficient to the time series data. Importantly, we find that these rules out-perform simple buy-hold and moving-average strategies over varying holding periods.

Suggested Citation

  • Jonathan A. Batten & Cetin Ciner & Brian M. Lucey & Peter G. Szilagyi, 2013. "The structure of gold and silver spread returns," Quantitative Finance, Taylor & Francis Journals, vol. 13(4), pages 561-570, March.
    • Handle: RePEc:taf:quantf:v:13:y:2013:i:4:p:561-570
    DOI: 10.1080/14697688.2012.708777
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14697688.2012.708777
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14697688.2012.708777?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Cajueiro, Daniel O. & Tabak, Benjamin M., 2008. "Testing for long-range dependence in world stock markets," Chaos, Solitons & Fractals, Elsevier, vol. 37(3), pages 918-927.
    2. Hendrik Bessembinder & Kalok Chan, 1998. "Market Efficiency and the Returns to Technical Analysis," Financial Management, Financial Management Association, vol. 27(2), Summer.
    3. Andrew Clark, 2005. "The use of Hurst and effective return in investing," Quantitative Finance, Taylor & Francis Journals, vol. 5(1), pages 1-8.
    4. Brian Lucey & Edel Tully, 2006. "Seasonality, risk and return in daily COMEX gold and silver data 1982-2002," Applied Financial Economics, Taylor & Francis Journals, vol. 16(4), pages 319-333.
    5. Thomas J. Urich, 2000. "Modes of fluctuation in metal futures prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 20(3), pages 219-241, March.
    6. Taguchi, Hiroyuki, 2011. "Monetary autonomy in emerging market economies: The role of foreign reserves," Emerging Markets Review, Elsevier, vol. 12(4), pages 371-388.
    7. Cochran, Steven J. & Mansur, Iqbal & Odusami, Babatunde, 2012. "Volatility persistence in metal returns: A FIGARCH approach," Journal of Economics and Business, Elsevier, vol. 64(4), pages 287-305.
    8. Sergio Bianchi & Augusto Pianese, 2007. "Modelling stock price movements: multifractality or multifractionality?," Quantitative Finance, Taylor & Francis Journals, vol. 7(3), pages 301-319.
    9. Wang, Yudong & Wei, Yu & Wu, Chongfeng, 2011. "Detrended fluctuation analysis on spot and futures markets of West Texas Intermediate crude oil," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(5), pages 864-875.
    10. Jiang, Zhi-Qiang & Zhou, Wei-Xing, 2008. "Multifractality in stock indexes: Fact or Fiction?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(14), pages 3605-3614.
    11. B. B. Mandelbrot, 2001. "Stochastic volatility, power laws and long memory," Quantitative Finance, Taylor & Francis Journals, vol. 1(6), pages 558-559.
    12. Ellis, Craig & Hudson, Christopher, 2007. "Scale-adjusted volatility and the Dow Jones index," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 378(2), pages 374-386.
    13. Batten, Jonathan A. & Szilagyi, Peter G., 2007. "Covered interest parity arbitrage and temporal long-term dependence between the US dollar and the Yen," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 409-421.
    14. Jaime Casassus & Pierre Collin‐Dufresne, 2005. "Stochastic Convenience Yield Implied from Commodity Futures and Interest Rates," Journal of Finance, American Finance Association, vol. 60(5), pages 2283-2331, October.
    15. Grech, Dariusz & Pamuła, Grzegorz, 2008. "The local Hurst exponent of the financial time series in the vicinity of crashes on the Polish stock exchange market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(16), pages 4299-4308.
    16. Mulligan, Robert F., 2004. "Fractal analysis of highly volatile markets: an application to technology equities," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(1), pages 155-179, February.
    17. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    18. Cajueiro, Daniel O. & Tabak, Benjamin M., 2007. "Long-range dependence and market structure," Chaos, Solitons & Fractals, Elsevier, vol. 31(4), pages 995-1000.
    19. Lo, Andrew W, 1991. "Long-Term Memory in Stock Market Prices," Econometrica, Econometric Society, vol. 59(5), pages 1279-1313, September.
    20. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. "Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-1764, December.
    21. Mohanty, Sunil & Nandha, Mohan & Bota, Gabor, 2010. "Oil shocks and stock returns: The case of the Central and Eastern European (CEE) oil and gas sectors," Emerging Markets Review, Elsevier, vol. 11(4), pages 358-372, December.
    22. Batten, Jonathan A. & Ellis, Craig A. & Fethertson, Thomas A., 2008. "Sample period selection and long-term dependence: New evidence from the Dow Jones index," Chaos, Solitons & Fractals, Elsevier, vol. 36(5), pages 1126-1140.
    23. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    24. Eom, Cheoljun & Choi, Sunghoon & Oh, Gabjin & Jung, Woo-Sung, 2008. "Hurst exponent and prediction based on weak-form efficient market hypothesis of stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(18), pages 4630-4636.
    25. Matos, José A.O. & Gama, Sílvio M.A. & Ruskin, Heather J. & Sharkasi, Adel Al & Crane, Martin, 2008. "Time and scale Hurst exponent analysis for financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(15), pages 3910-3915.
    26. Wang, Yudong & Wei, Yu & Wu, Chongfeng, 2011. "Analysis of the efficiency and multifractality of gold markets based on multifractal detrended fluctuation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(5), pages 817-827.
    27. Ewing, Bradley T. & Malik, Farooq, 2013. "Volatility transmission between gold and oil futures under structural breaks," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 113-121.
    28. Baur, Dirk G., 2013. "The autumn effect of gold," Research in International Business and Finance, Elsevier, vol. 27(1), pages 1-11.
    29. Carbone, A. & Castelli, G. & Stanley, H.E., 2004. "Time-dependent Hurst exponent in financial time series," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 344(1), pages 267-271.
    30. Takami, Marcelo Yoshio & Tabak, Benjamin Miranda, 2008. "Interest rate option pricing and volatility forecasting: An application to Brazil," Chaos, Solitons & Fractals, Elsevier, vol. 38(3), pages 755-763.
    31. Owczarczuk, Marcin, 2012. "Long memory in patterns of mobile phone usage," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(4), pages 1428-1433.
    32. Marco Avellaneda & Jeong-Hyun Lee, 2010. "Statistical arbitrage in the US equities market," Quantitative Finance, Taylor & Francis Journals, vol. 10(7), pages 761-782.
    33. Christie-David, Rohan & Chaudhry, Mukesh & Koch, Timothy W., 2000. "Do macroeconomics news releases affect gold and silver prices?," Journal of Economics and Business, Elsevier, vol. 52(5), pages 405-421.
    34. McCauley, Joseph L. & Bassler, Kevin E. & Gunaratne, Gemunu H., 2008. "Martingales, nonstationary increments, and the efficient market hypothesis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(15), pages 3916-3920.
    35. Du, Guoxiong & Ning, Xuanxi, 2008. "Multifractal properties of Chinese stock market in Shanghai," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(1), pages 261-269.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Benjamin Rainer Auer, 2018. "Are standard asset pricing factors long-range dependent?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(1), pages 66-88, January.
    2. Auer, Benjamin R., 2016. "On the performance of simple trading rules derived from the fractal dynamics of gold and silver price fluctuations," Finance Research Letters, Elsevier, vol. 16(C), pages 255-267.
    3. Wang, Yudong & Wu, Chongfeng & Pan, Zhiyuan, 2011. "Multifractal detrending moving average analysis on the US Dollar exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(20), pages 3512-3523.
    4. Li, Daye & Nishimura, Yusaku & Men, Ming, 2016. "The long memory and the transaction cost in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 442(C), pages 312-320.
    5. Batten, Jonathan A. & Ellis, Craig A. & Fethertson, Thomas A., 2008. "Sample period selection and long-term dependence: New evidence from the Dow Jones index," Chaos, Solitons & Fractals, Elsevier, vol. 36(5), pages 1126-1140.
    6. Zhou, Weijie & Dang, Yaoguo & Gu, Rongbao, 2013. "Efficiency and multifractality analysis of CSI 300 based on multifractal detrending moving average algorithm," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(6), pages 1429-1438.
    7. Vigne, Samuel A. & Lucey, Brian M. & O’Connor, Fergal A. & Yarovaya, Larisa, 2017. "The financial economics of white precious metals — A survey," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 292-308.
    8. Erhard Reschenhofer & Manveer K. Mangat, 2020. "Reducing the Bias of the Smoothed Log Periodogram Regression for Financial High-Frequency Data," Econometrics, MDPI, vol. 8(4), pages 1-15, October.
    9. Kristoufek, Ladislav, 2010. "On spurious anti-persistence in the US stock indices," Chaos, Solitons & Fractals, Elsevier, vol. 43(1), pages 68-78.
    10. O'Connor, Fergal A. & Lucey, Brian M. & Batten, Jonathan A. & Baur, Dirk G., 2015. "The financial economics of gold — A survey," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 186-205.
    11. Juan Benjamín Duarte Duarte & Juan Manuel Mascare?nas Pérez-Iñigo, 2014. "Comprobación de la eficiencia débil en los principales mercados financieros latinoamericanos," Estudios Gerenciales, Universidad Icesi, November.
    12. He, Ling-Yun & Chen, Shu-Peng, 2010. "Are developed and emerging agricultural futures markets multifractal? A comparative perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(18), pages 3828-3836.
    13. Cajueiro, Daniel O. & Tabak, Benjamin M., 2009. "Testing for long-range dependence in the Brazilian term structure of interest rates," Chaos, Solitons & Fractals, Elsevier, vol. 40(4), pages 1559-1573.
    14. Cajueiro, Daniel O. & Tabak, Benjamin M., 2006. "Testing for predictability in equity returns for European transition markets," Economic Systems, Elsevier, vol. 30(1), pages 56-78, March.
    15. Ferreira, Paulo, 2018. "Long-range dependencies of Eastern European stock markets: A dynamic detrended analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 454-470.
    16. Aikins Abakah, Emmanuel Joel & Gil-Alana, Luis A. & Tripathy, Trilochan, 2022. "Stochastic structure of metal prices: Evidence from fractional integration non-linearities and breaks," Resources Policy, Elsevier, vol. 78(C).
    17. Batten, Jonathan A. & Ellis, Craig & Fetherston, Thomas A., 2005. "Return anomalies on the Nikkei: Are they statistical illusions?," Chaos, Solitons & Fractals, Elsevier, vol. 23(4), pages 1125-1136.
    18. A. Sensoy & Benjamin M. Tabak, 2013. "How much random does European Union walk? A time-varying long memory analysis," Working Papers Series 342, Central Bank of Brazil, Research Department.
    19. Barunik, Jozef & Aste, Tomaso & Di Matteo, T. & Liu, Ruipeng, 2012. "Understanding the source of multifractality in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(17), pages 4234-4251.
    20. Ntim, Collins G. & English, John & Nwachukwu, Jacinta & Wang, Yan, 2015. "On the efficiency of the global gold markets," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 218-236.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:13:y:2013:i:4:p:561-570. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.