Submit Manuscript

Journal of Applied Sciences

Year: 2012 | Volume: 12 | Issue: 7 | Page No.: 668-674
Research Article

Analyzing Long and Short-run Relationships Between Comex Gold and Silver Futures

W. Pipattadanukul
Business Administration Division, Mahidol University International College, 999 Phutthamonthon 4 Road, Salaya, Nakhon Pathom, 73170, Thailand
P. Chintrakarn
Business Administration Division, Mahidol University International College, 999 Phutthamonthon 4 Road, Salaya, Nakhon Pathom, 73170, Thailand
The objective of this research was to study the relationship between gold and silver futures in COMEX market by using daily data from 6th of May, 1991 to 6th of May, 2011. There were 5520 observations. To investigate the short run and long run relationships between gold and silver futures price, this study employed unit root test, co-integration test and error correction model. If there are short-run and long-run relationships between gold and silver futures prices, it implied that gold can be used as a predictor to forecast the silver as well. It will provide an opportunity to market participants, investors, hedgers, arbitragers and speculators. The traders can use this relation between gold and silver futures price as trading strategy in order to diversify risk in the portfolio. Speculators can use this information to predict returns and make the investment strategies. Hedgers can use these markets as substitutes against the similar type of risks in a period of time. The empirical results revealed that there is a robust positive relationship between gold and silver future prices in the long run. For the short run relationship, change in the silver futures price significantly affects the gold futures price and vice versa.
PDF Fulltext XML References Citation

Leave a Comment

Your email address will not be published. Required fields are marked *

Article Trend

Total views 4099

References

  1. Aggarwal, R., 1992. Gold Markets. In: The New Palgrave Dictionary of Money and Finance, Newman, P., M. Milgate and J. Eatwell (Eds.). Macmillan, London, ISBN: 9780333527221, pp: 257-258.
  2. Ozun, A. and A. Cifter, 2007. Portfolio value-at-risk with time-varying copula: Evidence from latin America. J. Applied Sci., 7: 1916-1923.
    CrossRefDirect Link
  3. Ariovich, G., 1983. The impact of political tension on the price of gold. J. Stud. Econ. Econometrics, 16: 17-37.
  4. Capie, F., T.C. Mills and G. Wood, 2005. Gold as a hedge against the dollar. J. Int. Fin. Markets Inst. Money, 15: 343-352.
    CrossRefDirect Link
  5. Ciner, C., 2001. On the long run relationship between gold and silver prices: A note. Global Fin. J., 12: 299-303.
    Direct Link
  6. Lye, C.T., 2011. Enhanced stutzer index optimization using hybrid genetic algorithm and sequential quadratic programming. J. Applied Sci., 11: 855-860.
    CrossRef
  7. Ahortor, C.R.K. and R.A. Olopoenia, 2010. Determinants of portfolio flows to Ghana: A dynamic stochastic general equilibrium analysis. J. Applied Sci., 10: 1-19.
    CrossRefDirect Link
  8. Enders, W., 2009. Applied Econometric Time Series. 3rd Edn., John Wiley and Sons Inc., New York, ISBN: 9780470505397, Pages: 517.
  9. Krishnasamy, G., A.S. Santhapparaj and C.A. Malarvizhi, 2006. Financial market integration in Asia: Empirical analysis on selected asian stock index futures markets. J. Applied Sci., 6: 2611-2616.
    CrossRefDirect Link
  10. Ghosh, D., E.J. Levin, P. Macmillan and R.E. Wright, 2004. Gold as an inflation hedge? Stud. Econ. Fin., 22: 1-25.
    CrossRef
  11. Matallin-Saez, J.C., 2009. Non-simultaneous market timing in mutual funds. J. Applied Sci., 9: 1776-1780.
    CrossRefDirect Link
  12. Levin, E.J. and R.E. Wright, 2006. Short-run and long-run determinants of the price of gold. World Gold Council Report, Research Study No. 32, London. http://www.fullermoney.com/content/2006-07-06/rs_32_shortandlongrun1.pdf.
  13. Ferruz, L., I. Marco and F.J. Rivas, 2007. Stock market indices and investment funds. An empirical approach in the spanish and european context. J. Applied Sci., 7: 633-653.
    CrossRefDirect Link
  14. MacKinnon, J.G., 1991. Critical Values for Cointegration Tests. In: Long-Run Economic Relationships: Readings in Cointegration, Engle, R.F. and C.W.J. Granger (Eds.). Oxford University Press, Oxford, USA., pp: 267-276.
  15. Ranson, D., 2005. Inflation protection: Why gold works better than linkers. World Gold Council Report, London. http://www.gold.org/download/rs_archive/inflation_linkers.pdf.
  16. Wahab, M., R. Cohn and M. Lashgari, 1994. The gold-silver spread: Integration, cointegration, predictability and ex-ante arbitrage. J. Futures Markets, 14: 709-756.
    CrossRef

Keywords