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On the efficiency of the global gold markets

Ntim, Collins G., English, John, Nwachukwu, Jacinta and Wang, Yan (2015) On the efficiency of the global gold markets. International Review of Financial Analysis, 41. pp. 218-236. ISSN 1057-5219

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Abstract

This paper examines the weak-form efficiency of the global gold markets with specific focus on the random walks (RWS) and martingale difference sequence (MDS) hypotheses, and consequently, investigates the extent to which predictability or non-predictability of global daily spot gold price return series behaviour can be explained by volatilities in macroeconomic fundamentals. We apply traditional parametric variance-ratio tests and their recent non-parametric modifications based on ranks and signs to one of the largest datasets on world gold markets to-date, consisting of daily spot price series of 28 emerging and developed gold markets from January 1968 to August 2014. First, our results show that gold markets in Egypt, Indonesia, Mexico, Nepal, Pakistan, Russia, Saudi Arabia, UAE and Vietnam are not weak-form efficient neither from the perspective of the strict RWS nor in the relaxed MDS sense. By contrast, RWS and MDS hypotheses cannot be rejected for gold markets in Hong Kong, Japan, Switzerland, UK and US at the conventional rejection levels. Results for gold markets in Australia, Bahrain, Brazil, Canada, China, Germany, India, Malaysia, Singapore, South Africa, South Korea, Taiwan, Thailand and Turkey are, however, mixed. Second, our findings show that greater changes in economic fundamentals are associated with lower levels of rejecting the RWS and MDS hypotheses. Third, our evidence shows that the probability of rejecting the weak-form efficiency is higher in emerging gold markets than developed ones. Fourth, our results show that the RWS hypothesis is rejected more frequently than its MDS alternative, and thereby justifying our decision to conduct an explicit test of the RWS and MDS hypotheses. Our results are robust to estimating subsamples, overlapping rolling windows and endogeneity corrected models, as well as controlling for a number of country-specific institutional and trading factors. Our findings have crucial implications for global portfolio managers, investors, poly-makers and regulatory authorities.

Keywords Global gold markets; Macroeconomic variables; Random walks and martingales; Weak-form efficiency; Variance-ratios; Ranks and signs

Item Type: Article
Uncontrolled Keywords: Global gold markets; Macroeconomic variables; Random walks and martingales; Weak-form efficiency; Variance-ratios; Ranks and signs
Subjects: H Social Sciences > HG Finance
Schools: The Business School
The Business School > Financial Ethics and Governance Research Group
The Business School > Quantitative Analysis Research Group
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Depositing User: Collins Ntim
Date Deposited: 19 Mar 2015 14:40
Last Modified: 30 Nov 2016 19:03
URI: http://eprints.hud.ac.uk/id/eprint/23829

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