Gold and oil prices: abnormal returns, momentum and contrarian effects

Guglielmo Maria Caporale and Alex Plastun

Financial Markets and Portfolio Management, 2021, vol. 35, issue 3, No 3, 353-368

Abstract: Abstract This paper explores price (momentum and contrarian) effects and their timing parameters on the days characterised by abnormal returns and the following ones in two commodity markets. Specifically, using daily gold and oil price data over the period 01.01.2009–31.03.2020 the following hypotheses are tested: (H1) there is a time gap between the detection of an abnormal return day and the end of that day, (H2) there are price effects on the day after abnormal returns occur; (H3) price effects after 1-day abnormal returns have identifiable timing parameters; (H4) the detected timing parameters can be used to “beat the market”. For these purposes average analysis, t tests, CAR and trading simulation approaches are used. The main results can be summarised as follows. Prices tend to move in the direction of abnormal returns till the end of the day when these occur. The presence of abnormal returns can usually be detected before the end of the day by estimating specific timing parameters, and a momentum effect can be detected. On the following day two different price patterns are detected: a momentum effect for oil prices and a contrarian effect for gold prices, respectively. These effects are limited in time, and the corresponding timing parameters are estimated. Trading simulations show that these effects can be exploited to generate abnormal profits with an appropriate calibration of the timing parameters.

Keywords: Commodities; Anomalies; Momentum effect; Contrarian effect; Abnormal returns (search for similar items in EconPapers)
JEL-codes: C63 G12 G17 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Working Paper: Gold and Oil Prices: Abnormal Returns, Momentum and Contrarian Effects (2020)
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DOI: 10.1007/s11408-021-00380-w

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