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Dealer spread and portfolio selection under price risks: evidence from the gold service industry

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  • Jin-Ray Lu

Abstract

The bid and ask quotes as well as portfolio selection decisions of gold dealers who face a gold price risk are investigated within a continuous-time framework. The research integrates into a systematic analysis the decision of asset allocation in financial economics as well as the decision of a bid--ask spread in a market microstructure. The holding rate of gold is correlated to the intensity and jump size of the Poisson process, which is a hedging demand for gold assets against the risk of extreme events. According to empirical analysis from the gold service industries, the gold spread return is related to the expected return, volatility and jump risks of gold prices.

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  • Jin-Ray Lu, 2009. "Dealer spread and portfolio selection under price risks: evidence from the gold service industry," The Service Industries Journal, Taylor & Francis Journals, vol. 31(6), pages 975-996, May.
    • Handle: RePEc:taf:servic:v:31:y:2009:i:6:p:975-996
    DOI: 10.1080/02642060903079105
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    References listed on IDEAS

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