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Directional Returns for Gold and Silver: A Cluster Analysis Approach

In: Handbook of Recent Advances in Commodity and Financial Modeling

Author

Listed:
  • A. G. Malliaris

    (Quinlan School of Business, Loyola University Chicago)

  • Mary Malliaris

    (Quinlan School of Business, Loyola University Chicago)

Abstract

This paper considers the directional predictability of daily returns for both gold and silver. These two metals have had a long history behaving sometimes as complements and other times as substitutes. We use daily data from June of 2008 through February of 2015. The last 2 years were removed as a set for validation of the model and the remainder, almost 5 years, was used as training. A cluster analysis yields six important clusters. An evaluation of these clusters leads to the formation of three strategies for directional predictions – up or down—for both gold and silver returns. The results of this analysis suggest that each strategy has its own advantages: the first strategy suggests that gold returns can be predicted better than those of silver; the second strategy shows that predicting up for gold also means predicting down for silver and the final strategy confirms that predicting up for silver also validates predicting down for gold.

Suggested Citation

  • A. G. Malliaris & Mary Malliaris, 2018. "Directional Returns for Gold and Silver: A Cluster Analysis Approach," International Series in Operations Research & Management Science, in: Giorgio Consigli & Silvana Stefani & Giovanni Zambruno (ed.), Handbook of Recent Advances in Commodity and Financial Modeling, chapter 0, pages 3-16, Springer.
    • Handle: RePEc:spr:isochp:978-3-319-61320-8_1
    DOI: 10.1007/978-3-319-61320-8_1
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    References listed on IDEAS

    as
    1. Jonathan A. Batten & Cetin Ciner & Brian M. Lucey, 2015. "Which precious metals spill over on which, when and why? Some evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 22(6), pages 466-473, April.
    2. Dirk Baur & Duy Tran, 2014. "The long-run relationship of gold and silver and the influence of bubbles and financial crises," Empirical Economics, Springer, vol. 47(4), pages 1525-1541, December.
    3. Friedman, Milton, 1990. "Bimetallism Revisited," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 85-104, Fall.
    4. Raj Aggarwal & Brian Lucey & Fergal O'Connor, 2015. "World Metal Markets," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 10, pages 325-347, World Scientific Publishing Co. Pte. Ltd..
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    More about this item

    Keywords

    Gold; Silver; Directional Forecasting; Cluster Analysis; Neural Networks;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • G1 - Financial Economics - - General Financial Markets

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