The effect of investor sentiment on gold market return dynamics: Evidence from a nonparametric causality-in-quantiles approach
Riza Demirer and
Resources Policy, 2017, vol. 51, issue C, 77-84
This paper explores the effect of investor sentiment on the intraday return dynamics in the gold market. We build on the recent evidence by Da et al. (2015) that the Financial and Economic Attitudes Revealed by Search (FEARS) index, as a proxy for investor sentiment, has predictive power over stock market returns and extend the analysis to gold intraday returns using a novel methodology developed by Balcilar et al. (2016) to examine nonlinear casual effects of sentiment on gold return and volatility. We find that the effect of investor sentiment is more prevalent on intraday volatility in the gold market, rather than daily returns. The sentiment effect, however, is channeled via the discontinuous (jump) component of intraday volatility, particularly at extreme quantiles, implying that extreme fear (confidence) contributes to positive (negative) volatility jumps in gold returns. The results suggest that measures of sentiment could be utilized to model volatility jumps in safe haven assets that are often hard to predict and have significant implications for risk management as well as the pricing of options.
Keywords: C22; Q02; Investor sentiment; Gold returns; Intraday volatility; Volatility jumps (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:51:y:2017:i:c:p:77-84
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