Turn-of-the Year Affect in Gold Prices: Decomposition Analysis

In this article, we examine whether the gold market returns is subject to abnormally positive or negative returns in some months of the calendar year. We derive the percentage monthly returns of gold prices denoted in both major global currencies and the currencies of the largest gold consumer markets. The statistical analysis and the decomposition techniques suggests gold prices show some seasonal behaviour during the turn of the year. Our findings for these months are robust to the chosen currency, albeit with some differences in monthly returns between highly correlated major currencies and loosely correlated gold demanding currencies. We observe a strong cyclical behaviour in gold markets during the turn-of-the-year period. January is likely to offer the highest return whereas significant negative returns are expected in July

Keywords:

Gold, Investment, calendar effect decomposition analysis,

PDF

___

Auer, B.R. Daily seasonality in crude oil returns and volatilities (2014) Energy Economics, 43, pp. 82- 88. DOI: 10.1016/j.eneco.2014.02.005
Balaban, E., Bayar, A., Kan, Ö.B. Stock returns, seasonality and asymmetric conditional volatility in world equity markets (2001) Applied Economics Letters, 8 (4), pp. 263-268.
Bouman, S. and Jacobsen, B., 2002. The Halloween Indicator, “Sell in May and Go Away”: Another Puzzle. The American Economic Review, 92(5), pp. 1618-1635.
Basu, S., Clouse, M.L. A comparative analysis of gold market efficiency using derivative market information (1993) Resources Policy, 19 (3), pp. 217-224. DOI: 10.1016/0301- 4207(93)90007-A
Batten, J.A., Ciner, C., Lucey, B.M., Szilagyi, P.G. The structure of gold and silver spread returns (2013) Quantitative Finance, 13 (4), pp. 561-570. DOI: 10.1080/14697688.2012.708777
Baur, D.G. The autumn effect of gold (2013) Research in International Business and Finance, 27 (1), pp. 1-11. DOI: 10.1016/j.ribaf.2012.05.001
Berument, H., Kiymaz, H. The day of the week effect on stock market volatility (2001) Journal of Economics and Finance, 25 (2), pp. 181-193.
Blose, L.E., Gondhalekar, V. Weekend gold returns in bull and bear markets (2013) Accounting and Finance, 53 (3), pp. 609-622. DOI: 10.1111/j.1467-629X.2012.00497.x
Cai, J., Cheung, Y.-L., Wong, M.C.S. What moves the gold market? (2001) Journal of Futures Markets, 21 (3), pp. 257-278. DOI: 10.1002/1096-9934(200103)21:33.0.CO;2-W
Capie, F., Mills, T.C., Wood, G. Gold as a hedge against the dollar (2005) Journal of International Financial 10.1016/j.intfin.2004.07.002 Institutions and Money, 15 (4), pp. 343-352. DOI
Charles, A., Darné, O., Kim, J.H. Will precious metals shine? A market efficiency perspective (2015) International Review of Financial Analysis, DOI: 10.1016/j.irfa.2015.01.018
Dzhabarov, C. and Ziemba, W.T., 2010. Do Seasonal Anomalies Still Work? The Journal of Portfolio Management, 36(3), pp. 93-104.
El Hedi Arouri, M., Lahiani, A., Nguyen, D.K. World gold prices and stock returns in China: Insights for hedging and diversification strategies (2015) Economic Modelling, 44, pp. 273-282. DOI: 10.1016/j.econmod.2014.10.030
Gallais-Hamonno, G., Hoang, T.-H.-V., Oosterlinck, K. Informational efficiency of the clandestine and official gold markets in Paris (2015) Economics Letters, 126, pp. 28-30. DOI: 10.1016/j.econlet.2014.11.013
Gencer, G., Musoglu, Z. The safe haven property of gold in Turkish financial markets: An investigation of the global financial crisis (2014) Bogazici Journal, 28 (2), pp. 75-89.
Gooijer, J.G. and Hyndman, R.J., 2006. 25 Years of Time Series Forecasting. International Journal of Forecasting, 22(3), pp. 443-473.
Gulseven, O. Multidimensional Analysis of Monthly Stock Market Returns, Scientific Annals of the ‟Alexandru Ioan Cuza” University of Iaşi Economic Sciences, 61 (2), 2014, 181-196. DOI 10.2478/aicue-2014-0013
Gülseven, O., Ekici, Ö. The Turkish appetite for gold: An Islamic explanation (2016) Resources Policy, 48, pp. 41-49. DOI: 10.1016/j.resourpol.2016.02.006
Ho, Y.-K. A test of the incrementally efficient market hypothesis for the London gold market (1985) Economics Letters, 19 (1), pp. 67-70. DOI: 10.1016/0165-1765(85)90105-3
Jain, A., Ghosh, S. Dynamics of global oil prices, exchange rate and precious metal prices in India (2013) Resources Policy, 38 (1), pp. 88-93. DOI: 10.1016/j.resourpol.2012.10.001
Kaufmann, T.D., Winters, R.A. The price of gold. A simple model (1989) Resources Policy, 15 (4), pp. 309-313.
Kiohos, A., Sariannidis, N. Determinants of the asymmetric gold market (2010) Investment Management and Financial Innovations, 7 (4), pp. 26-33.
Kiran, B. An analysis of long memory in Turkish gold returns (2010) International Journal of Economic Research, 7 (2), pp. 141-150.
Kristoufek, L., Vosvrda, M. Gold, currencies and market efficiency (2016) Physica A: Statistical Mechanics and its Applications, 449, pp. 27-34. DOI: 10.1016/j.physa.2015.12.075
Lu, J.-R., Chan, C.-M. Optimal portfolio choice of gold assets in the differential market and differential game structures (2014) Review of Quantitative Finance and Accounting, 42 (2), pp. 309-325. DOI: 10.1007/s11156-013-0343-2
Lucey, B.M. Lunar seasonality in precious metal returns? (2010) Applied Economics Letters, 17 (9), pp. 835-838. DOI: 10.1080/17446540802516188
Mali, P. Fluctuation of gold price in India versus global consumer price index (2014) Fractals, 22 (1- 2), art. no. 14500042 DOI:10.1142/S0218348X14500042
Mehdian, S. and Perry, M.J., 2002. Anomalies in U. S. equity markets: A re-examination of the January effect. Applied Financial Economics, 12(2), pp. 141-145.
Mehrara, M., Moeini, A., Ahrari, M., Varahrami, V. Inefficiency in gold market (2010) International Research Journal of Finance and Economics, 43, pp. 57-67.
Miyazaki, T., Hamori, S. Testing for causality between the gold return and stock market performance: Evidence for 'gold investment in case of emergency' (2013) Applied Financial Economics, 23 (1), pp. 27-40. DOI:10.1080/09603107.2012.699184
Munir, Q., Kok, S.C. Does malaysian gold bullion coin prices follow mean reversion or random walk? (2014) Journal of Applied Economic Sciences, 9 (1), pp. 76-87.
Narayan, P.K., Narayan, S., Zheng, X. Gold and oil futures markets: Are markets efficient? (2010) Applied Energy, 87 (10), pp. 3299-3303. DOI: 10.1016/j.apenergy.2010.03.020
Ntim, C.G., English, J., Nwachukwu, J., Wang, Y. On the efficiency of the global gold markets (2015) International Review of Financial Analysis, . Article in Press. DOI: 10.1016/j.irfa.2015.03.013
Pierdzioch, C., Risse, M., Rohloff, S. On the efficiency of the gold market: Results of a real-time forecasting approach (2014) International Review of Financial Analysis, 32, pp. 95-108. DOI: 10.1016/j.irfa.2014.01.012
Pukthuanthong, K., Roll, R. Gold and the Dollar (and the Euro, Pound, and Yen) (2011) Journal of Banking and Finance, 35 (8), pp. 2070-2083. DOI: 10.1016/j.jbankfin.2011.01.014
Pullen, T., Benson, K., Faff, R. A comparative analysis of the investment characteristics of alternative gold assets (2014) Abacus, 50 (1), pp. 76-92. DOI: 10.1111/abac.12023
Shahbaz, M., Tahir, M.I., Ali, I., Rehman, I.U. Is gold investment a hedge against inflation in Pakistan? A co-integration and causality analysis in the presence of structural breaks (2014) North American Journal of Economics and Finance, 28, pp. 190-205. DOI: 10.1016/j.najef.2014.03.012
Sharma, S.S. Can consumer price index predict gold price returns? (2016) Economic Modelling, 55, pp. 269-278. DOI:10.1016/j.econmod.2016.02.014
Tschoegl, A.E. Efficiency in the gold market - a note (1980) Journal of Banking and Finance, 4 (4), pp. 371-379. DOI: 10.1016/0378-4266(80)90015-1
Xian, L., He, K., Lai, K.K. Gold price analysis based on ensemble empirical model decomposition and independent component analysis (2016) Physica A: Statistical Mechanics and its Applications, 454, pp. 11-23. DOI: 10.1016/j.physa.2016.02.055
Zhang, Y.-J., Wei, Y.-M. The crude oil market and the gold market: Evidence for cointegration, causality and price discovery (2010) Resources Policy, 35 (3), pp. 168-177. DOI: 10.1016/j.resourpol.2010.05.003