Explaining the gold price after the Bretton Woods Agreement using independent variables. An ARIMA model approach

Business & Finance, Finance & Investing, Finance
Cover of the book Explaining the gold price after the Bretton Woods Agreement using independent variables. An ARIMA model approach by Stefan Heini, GRIN Publishing
View on Amazon View on AbeBooks View on Kobo View on B.Depository View on eBay View on Walmart
Author: Stefan Heini ISBN: 9783668030930
Publisher: GRIN Publishing Publication: August 14, 2015
Imprint: GRIN Publishing Language: English
Author: Stefan Heini
ISBN: 9783668030930
Publisher: GRIN Publishing
Publication: August 14, 2015
Imprint: GRIN Publishing
Language: English

Master's Thesis from the year 2014 in the subject Economics - Finance, grade: 1.7, University of Leicester (Center of Management), language: English, abstract: To date, nobody has formulated a comprehensive theorem to determine gold valuation or precious metal prices. Until fairly recently, Eugene Fama's Efficient Market Hypothesis was the predominant paradigm explaining asset markets but today it is widely acknowledged that markets can be irrational and investors are prone to act irrationally. When trying to explain gold market anomalies, behavioural science approaches can be useful. Phenomena such as herding ('group think'), 'safe value bias' and investors' 'excessive extrapolation' can help explain positive price performance over a certain time. In this dissertation, the author investigates the applicability of a multivariate ARIMA (auto-regressive, integrated, moving average) model to help explain gold price movements from 1973 to 2011. This model uses the gold price and independent variables such as inflation, real interest rates, silver prices, the US dollar money supply (M2), oil prices, the MSCI World index and the S&P 500 as these are linked to gold and/or highly correlated with the gold price. The evaluation criteria were defined as R-squared, mean absolute percentage error (MAPE) and BIC. The model was calculated over so-called 'normal times' and times of crises (one political, one financial). The researcher used SPSS' Expert Modeler to find the best-fitting ARIMA model and to identify the independent variables significantly contributing to the fit of the model. Remarkably, a multivariate ARIMA model using independent variables explained almost twice as much of the variability of the gold price as a univariate ARIMA model using only the gold price. Also, throughout the complete period and during normal times the model explained a much higher percentage of the variability of the gold price than during crises and comparably more of the independent variables contributed significantly to the fit of the model (5 vs. 2). This can be explained by investors' tendencies to buy gold to preserve their assets ('safe value'), to follow the crowd ('herding') and to extrapolate past price chart developments. The results show that in an attempt to discern the cause of gold price movements, a multivariate ARIMA model outperforms a univariate ARIMA model significantly. The results of the study furthermore indicate researchers evaluating different methods to fit a time series should consider a multivariate ARIMA model, especially if the independent variables are highly correlated with the dependent variable.

View on Amazon View on AbeBooks View on Kobo View on B.Depository View on eBay View on Walmart

Master's Thesis from the year 2014 in the subject Economics - Finance, grade: 1.7, University of Leicester (Center of Management), language: English, abstract: To date, nobody has formulated a comprehensive theorem to determine gold valuation or precious metal prices. Until fairly recently, Eugene Fama's Efficient Market Hypothesis was the predominant paradigm explaining asset markets but today it is widely acknowledged that markets can be irrational and investors are prone to act irrationally. When trying to explain gold market anomalies, behavioural science approaches can be useful. Phenomena such as herding ('group think'), 'safe value bias' and investors' 'excessive extrapolation' can help explain positive price performance over a certain time. In this dissertation, the author investigates the applicability of a multivariate ARIMA (auto-regressive, integrated, moving average) model to help explain gold price movements from 1973 to 2011. This model uses the gold price and independent variables such as inflation, real interest rates, silver prices, the US dollar money supply (M2), oil prices, the MSCI World index and the S&P 500 as these are linked to gold and/or highly correlated with the gold price. The evaluation criteria were defined as R-squared, mean absolute percentage error (MAPE) and BIC. The model was calculated over so-called 'normal times' and times of crises (one political, one financial). The researcher used SPSS' Expert Modeler to find the best-fitting ARIMA model and to identify the independent variables significantly contributing to the fit of the model. Remarkably, a multivariate ARIMA model using independent variables explained almost twice as much of the variability of the gold price as a univariate ARIMA model using only the gold price. Also, throughout the complete period and during normal times the model explained a much higher percentage of the variability of the gold price than during crises and comparably more of the independent variables contributed significantly to the fit of the model (5 vs. 2). This can be explained by investors' tendencies to buy gold to preserve their assets ('safe value'), to follow the crowd ('herding') and to extrapolate past price chart developments. The results show that in an attempt to discern the cause of gold price movements, a multivariate ARIMA model outperforms a univariate ARIMA model significantly. The results of the study furthermore indicate researchers evaluating different methods to fit a time series should consider a multivariate ARIMA model, especially if the independent variables are highly correlated with the dependent variable.

More books from GRIN Publishing

Cover of the book Principales Etapas en la Transmisión de los Textos Griegos by Stefan Heini
Cover of the book The EU - Africa Relationship by Stefan Heini
Cover of the book The Scottish Language Varieties and their Influences on the Scottish Identity by Stefan Heini
Cover of the book Implications of the Conceptual Metaphor 'Languages are Creatures' by Stefan Heini
Cover of the book Electoral systems in Australia and Germany - a comparative study by Stefan Heini
Cover of the book The Rosenbergs - Victims of their time? by Stefan Heini
Cover of the book Language Policy, Biculturalism and Bilingualism by Stefan Heini
Cover of the book Microcredits and peer-to-peer lending as financing tools for start-ups in Germany by Stefan Heini
Cover of the book The representation of space: Prose and maps about the London Underground by Stefan Heini
Cover of the book Representations of London in Colin MacInnes's 'Absolute Beginners' by Stefan Heini
Cover of the book Analysis of Woody Allen's short story 'Sam you made the pants too fragrant' by Stefan Heini
Cover of the book Sexy Families for Sexy Citizens? by Stefan Heini
Cover of the book Global competitiveness of the car industry by Stefan Heini
Cover of the book (Post)structural notions of language and history in the novels of Julian Barnes by Stefan Heini
Cover of the book Unemployment of low-skill workers in Germany - Would an earned income tax implemented on the EU level help to strengthen their position? by Stefan Heini
We use our own "cookies" and third party cookies to improve services and to see statistical information. By using this website, you agree to our Privacy Policy