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 Rock music in the German Democratic Republic during the 1970s by Stefan Heini
Cover of the book Entwicklung von Methodenkompetenz 'Arbeit mit der Karte' im Geografieunterricht in Klasse 9 by Stefan Heini
Cover of the book Why should a country join a customs union? by Stefan Heini
Cover of the book Integral View of Core Competences and Core Processes in a Company by Stefan Heini
Cover of the book Global Brands & Culture by Stefan Heini
Cover of the book eCRM: Using the internet for customer relationship management at the TQU Academy by Stefan Heini
Cover of the book The Extent to which 'Consciousness' poses a problem for the Computational Theory of Mind by Stefan Heini
Cover of the book Selected Aspects in the Development of Political Interest Groups by Stefan Heini
Cover of the book Gender Ambiguity in Shakespeare's Macbeth by Stefan Heini
Cover of the book Die politische Ökonomie der russischen Wirtschaftspolitik in der Jelzin-Ära: State-Capture durch die 'Oligarchen'? by Stefan Heini
Cover of the book Realism featured in fantasy series:The portrayal of death by Stefan Heini
Cover of the book Functioning like a clockwork - musicality in 'A Clockwork Orange' by Stefan Heini
Cover of the book The Bulgarian Financial Crisis of 1996-1997: A Crisis of Transition by Stefan Heini
Cover of the book A Troika of perceptions. The influence of Bush, Powell and Rumsfeld on the Creation of the USA Patriot Act of 2001 by Stefan Heini
Cover of the book Die Entwicklung der Kriegstechnik unter ökologischen Aspekten 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