Does Quantile Co-Integration Exist Between Gold Spot and Futures Prices?

Hai-Chin Yu, Chia-Ju Lee and Hsieh Der-Tzon

Chapter 92 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 3219-3239 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This study examines the relationships between the gold spot and futures with different maturities using a time-varying and quantile-dependent approach, that is, the quantile co-integration model. This model allows the co-integrating coefficient to vary over the conditional distribution of gold spot prices. We find that the returns of gold at lower quantiles, the co-integration among gold spot prices and one- to six-month gold futures prices are less stronger than the returns at high quantiles. When the gold returns of quantiles are high, these relationships become even stronger. In terms of the co-integration between gold and VIX (CBOE Volatility Index), we find that the co-integration of gold spot prices, futures prices and VIX at high quantile are greater than those observed at low quantiles. Our work adds another cross-sectional dimension to the extant literature, which uses only the time-series dimension to examine the co-integration. Furthermore, the results suggest that while investors intend to hedge risk by exercising futures contracts, using short-term futures would be a better choice than the long-term contracts.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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