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

In: HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING

Author

Listed:
  • Hai-Chin Yu
  • Chia-Ju Lee
  • Der-Tzon Hsieh
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.

Suggested Citation

  • Hai-Chin Yu & Chia-Ju Lee & Der-Tzon Hsieh, 2020. "Does Quantile Co-Integration Exist Between Gold Spot and Futures Prices?," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 92, pages 3219-3239, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811202391_0092
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    More about this item

    Keywords

    Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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