Long-range dependence in returns and volatility of global gold market amid financial crises

Maurice Omane-Adjepong and Gideon Boako

Physica A: Statistical Mechanics and its Applications, 2017, vol. 472, issue C, 188-202

Abstract: Using sampled historical daily gold market data from 07-03-1985 to 06-01-2015, and building on a related work by Bentes (2016), this paper examines the presence of long-range dependence (LRD) in the world’s gold market returns and volatility, accounting for structural breaks. The sampled gold market data was divided into subsamples based on four global crises: the September 1992 collapse of the European Exchange Rate Mechanism (ERM), the Asian financial crisis of mid-1997, the Subprime meltdown of 2007, and the recent European sovereign debt crisis, which hit the world’s market with varying effects. LRD test was carried-out on the full-sample and subsample periods using three semiparametric methods—before and after adjusting for structural breaks. The results show insignificant evidence of LRD in gold returns. However, very diminutive evidence is found for periods characterized by financial/economic shocks, with no significant detections for post-shock periods. Collectively, this is indicative that the gold market is less speculative, and hence could be somehow less risky for hedging and portfolio diversification.

Keywords: Long-range dependence; Gold returns; Financial crisis; Volatility; Structural breaks (search for similar items in EconPapers)
JEL-codes: C22 G10 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:472:y:2017:i:c:p:188-202

DOI: 10.1016/j.physa.2016.12.013

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