Determinants of the Gold Futures Price Volatility: The Case of Thailand Futures Exchange

Woradee Jongadsayakul

Applied Economics Journal, 2014, vol. 21, issue 1, 59-78

Abstract: This research studies determinants of the gold futures price volatility in Thailand Futures Exchange using Linear Regression Model and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) Model. The data sample consists of daily settlement price, volume, and open interest of gold futures from the first trading day in Thailand Futures Exchange to June 26, 2013. We examine the nearby futures contract, which is switched over to the next maturing contract one day before the expiration date. The results of both models confirm that price returns volatility of gold futures increases when (1) the futures contract approaches expiration (2) trading volume increases and (3) open interest decreases. We also present an analysis of the role of covariance between changes in spot prices and carry costs in explaining the maturity effect in futures. Our results provide very strong evidence in favor of this negative covariance hypothesis. Therefore, the results of this study would be of interest to investors due to their importance to forecast future prices of gold. Hedgers should adjust their optimal hedging position according to volatility changes. The analysis of gold futures volatility also insists the Clearing House in setting different margin requirements as each contract approaches maturity differently. Margin requirements should be raised for nearby gold futures contract as its volatility increases. Either an increase in trading volume or a decrease in open interest should also increase margin requirements for gold futures.

Keywords: futures price volatility; gold futures; Samuelson hypothesis (search for similar items in EconPapers)
JEL-codes: C32 G13 G32 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.journal.eco.ku.ac.th/upload/document/thai/20140613111613.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aej:apecjn:v:21:y:2014:i:1:p:59-78

Access Statistics for this article

Applied Economics Journal is currently edited by Kampanat Pensupar

More articles in Applied Economics Journal from Kasetsart University, Faculty of Economics, Center for Applied Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Chatrat Hemmawat ().