The impact of festivities on gold price expectation and volatility

Harald Schmidbauer and Angi Rösch

International Review of Financial Analysis, 2018, vol. 58, issue C, 117-131

Abstract: A majority of gold worldwide is bought as jewelry. China and India together account for about 60% of worldwide gold jewelry consumption. Gold is a traditional gift in many cultures and often given away on the occasion of festivals, such as Chinese New Year, Diwali, and Ramadan Eid. These facts lead us to an obvious question: Do gold prices behave differently around festivals? This question has not yet been systematically discussed on the basis of stochastic models. The purpose of the present paper is to investigate the effects of a selection of festivals on the distribution of daily gold price changes. Dummy variables indicating the festival are modified to reflect anticipation and/or aftereffects of festivities, and they are used as covariates in a combination of regression and GARCH models to specify conditional expectation and volatility of daily gold price changes. We set up a model which measures the effect of festivities on the return distribution in terms of the magnitude of current volatility, which acts as a “news magnifier”. After fitting this model to data, extensive robustness checks are undertaken to make sure our results are valid.

Keywords: Gold prices; Festivals; Gold jewelry; Gold price volatility; GARCH with covariates; News-magnifying model (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 G14 G15 L70 Q02 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:58:y:2018:i:c:p:117-131

DOI: 10.1016/j.irfa.2018.03.006

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