On the efficiency of the global gold markets

C.G. Ntim, J. English, Jacinta Nwachukwu, Y. Wang

Research output: Contribution to journalArticle

17 Citations (Scopus)
13 Downloads (Pure)

Abstract

This paper examines the weak-form efficiency of the global gold markets with specific focus on the random walks (RWS) and martingale difference sequence (MDS) hypotheses, and consequently, investigates the extent to which predictability or non-predictability of global daily spot gold price return series behaviour can be explained by volatilities in macroeconomic fundamentals. We apply traditional parametric variance-ratio tests and their recent non-parametric modifications based on ranks and signs to one of the largest datasets on world gold markets to-date, consisting of daily spot price series of 28 emerging and developed gold markets from January 1968 to August 2014. First, our results show that gold markets in Egypt, Indonesia, Mexico, Nepal, Pakistan, Russia, Saudi Arabia, UAE and Vietnam are not weak-form efficient neither from the perspective of the strict RWS nor in the relaxed MDS sense. By contrast, RWS and MDS hypotheses cannot be rejected for gold markets in Hong Kong, Japan, Switzerland, UK and US at the conventional rejection levels. Results for gold markets in Australia, Bahrain, Brazil, Canada, China, Germany, India, Malaysia, Singapore, South Africa, South Korea, Taiwan, Thailand and Turkey are, however, mixed. Second, our findings show that greater changes in economic fundamentals are associated with lower levels of rejecting the RWS and MDS hypotheses. Third, our evidence shows that the probability of rejecting the weak-form efficiency is higher in emerging gold markets than developed ones. Fourth, our results show that the RWS hypothesis is rejected more frequently than its MDS alternative, and thereby justifying our decision to conduct an explicit test of the RWS and MDS hypotheses. Our results are robust to estimating subsamples, overlapping rolling windows and endogeneity corrected models, as well as controlling for a number of country-specific institutional and trading factors. Our findings have crucial implications for global portfolio managers, investors, poly-makers and regulatory authorities.
Original languageEnglish
Pages (from-to)218-236
JournalInternational Review of Financial Analysis
Volume41
Early online date28 Mar 2015
DOIs
Publication statusPublished - Oct 2015
Externally publishedYes

Fingerprint

Martingale
Random walk
Weak-form efficiency
Germany
India
Authority
Variance ratio test
Overlapping
Pakistan
Brazil
Bahrain
Hong Kong
Economic fundamentals
Mexico
United Arab Emirates
Egypt
Investors
Saudi Arabia
Japan
Turkey

Bibliographical note

This is an open access article under the CC BY license

Keywords

  • Global gold markets
  • Macroeconomic variables
  • Random walks and martingales
  • Weak-form efficiency
  • Variance-ratios
  • Ranks and signs

Cite this

On the efficiency of the global gold markets. / Ntim, C.G.; English, J.; Nwachukwu, Jacinta; Wang, Y.

In: International Review of Financial Analysis, Vol. 41, 10.2015, p. 218-236.

Research output: Contribution to journalArticle

Ntim, C.G. ; English, J. ; Nwachukwu, Jacinta ; Wang, Y. / On the efficiency of the global gold markets. In: International Review of Financial Analysis. 2015 ; Vol. 41. pp. 218-236.
@article{53a4e20e12464c34bcd03a3479b3939f,
title = "On the efficiency of the global gold markets",
abstract = "This paper examines the weak-form efficiency of the global gold markets with specific focus on the random walks (RWS) and martingale difference sequence (MDS) hypotheses, and consequently, investigates the extent to which predictability or non-predictability of global daily spot gold price return series behaviour can be explained by volatilities in macroeconomic fundamentals. We apply traditional parametric variance-ratio tests and their recent non-parametric modifications based on ranks and signs to one of the largest datasets on world gold markets to-date, consisting of daily spot price series of 28 emerging and developed gold markets from January 1968 to August 2014. First, our results show that gold markets in Egypt, Indonesia, Mexico, Nepal, Pakistan, Russia, Saudi Arabia, UAE and Vietnam are not weak-form efficient neither from the perspective of the strict RWS nor in the relaxed MDS sense. By contrast, RWS and MDS hypotheses cannot be rejected for gold markets in Hong Kong, Japan, Switzerland, UK and US at the conventional rejection levels. Results for gold markets in Australia, Bahrain, Brazil, Canada, China, Germany, India, Malaysia, Singapore, South Africa, South Korea, Taiwan, Thailand and Turkey are, however, mixed. Second, our findings show that greater changes in economic fundamentals are associated with lower levels of rejecting the RWS and MDS hypotheses. Third, our evidence shows that the probability of rejecting the weak-form efficiency is higher in emerging gold markets than developed ones. Fourth, our results show that the RWS hypothesis is rejected more frequently than its MDS alternative, and thereby justifying our decision to conduct an explicit test of the RWS and MDS hypotheses. Our results are robust to estimating subsamples, overlapping rolling windows and endogeneity corrected models, as well as controlling for a number of country-specific institutional and trading factors. Our findings have crucial implications for global portfolio managers, investors, poly-makers and regulatory authorities.",
keywords = "Global gold markets, Macroeconomic variables, Random walks and martingales, Weak-form efficiency, Variance-ratios, Ranks and signs",
author = "C.G. Ntim and J. English and Jacinta Nwachukwu and Y. Wang",
note = "This is an open access article under the CC BY license",
year = "2015",
month = "10",
doi = "10.1016/j.irfa.2015.03.013",
language = "English",
volume = "41",
pages = "218--236",
journal = "International Review of Financial Analysis",
issn = "1057-5219",
publisher = "Elsevier",

}

TY - JOUR

T1 - On the efficiency of the global gold markets

AU - Ntim, C.G.

AU - English, J.

AU - Nwachukwu, Jacinta

AU - Wang, Y.

N1 - This is an open access article under the CC BY license

PY - 2015/10

Y1 - 2015/10

N2 - This paper examines the weak-form efficiency of the global gold markets with specific focus on the random walks (RWS) and martingale difference sequence (MDS) hypotheses, and consequently, investigates the extent to which predictability or non-predictability of global daily spot gold price return series behaviour can be explained by volatilities in macroeconomic fundamentals. We apply traditional parametric variance-ratio tests and their recent non-parametric modifications based on ranks and signs to one of the largest datasets on world gold markets to-date, consisting of daily spot price series of 28 emerging and developed gold markets from January 1968 to August 2014. First, our results show that gold markets in Egypt, Indonesia, Mexico, Nepal, Pakistan, Russia, Saudi Arabia, UAE and Vietnam are not weak-form efficient neither from the perspective of the strict RWS nor in the relaxed MDS sense. By contrast, RWS and MDS hypotheses cannot be rejected for gold markets in Hong Kong, Japan, Switzerland, UK and US at the conventional rejection levels. Results for gold markets in Australia, Bahrain, Brazil, Canada, China, Germany, India, Malaysia, Singapore, South Africa, South Korea, Taiwan, Thailand and Turkey are, however, mixed. Second, our findings show that greater changes in economic fundamentals are associated with lower levels of rejecting the RWS and MDS hypotheses. Third, our evidence shows that the probability of rejecting the weak-form efficiency is higher in emerging gold markets than developed ones. Fourth, our results show that the RWS hypothesis is rejected more frequently than its MDS alternative, and thereby justifying our decision to conduct an explicit test of the RWS and MDS hypotheses. Our results are robust to estimating subsamples, overlapping rolling windows and endogeneity corrected models, as well as controlling for a number of country-specific institutional and trading factors. Our findings have crucial implications for global portfolio managers, investors, poly-makers and regulatory authorities.

AB - This paper examines the weak-form efficiency of the global gold markets with specific focus on the random walks (RWS) and martingale difference sequence (MDS) hypotheses, and consequently, investigates the extent to which predictability or non-predictability of global daily spot gold price return series behaviour can be explained by volatilities in macroeconomic fundamentals. We apply traditional parametric variance-ratio tests and their recent non-parametric modifications based on ranks and signs to one of the largest datasets on world gold markets to-date, consisting of daily spot price series of 28 emerging and developed gold markets from January 1968 to August 2014. First, our results show that gold markets in Egypt, Indonesia, Mexico, Nepal, Pakistan, Russia, Saudi Arabia, UAE and Vietnam are not weak-form efficient neither from the perspective of the strict RWS nor in the relaxed MDS sense. By contrast, RWS and MDS hypotheses cannot be rejected for gold markets in Hong Kong, Japan, Switzerland, UK and US at the conventional rejection levels. Results for gold markets in Australia, Bahrain, Brazil, Canada, China, Germany, India, Malaysia, Singapore, South Africa, South Korea, Taiwan, Thailand and Turkey are, however, mixed. Second, our findings show that greater changes in economic fundamentals are associated with lower levels of rejecting the RWS and MDS hypotheses. Third, our evidence shows that the probability of rejecting the weak-form efficiency is higher in emerging gold markets than developed ones. Fourth, our results show that the RWS hypothesis is rejected more frequently than its MDS alternative, and thereby justifying our decision to conduct an explicit test of the RWS and MDS hypotheses. Our results are robust to estimating subsamples, overlapping rolling windows and endogeneity corrected models, as well as controlling for a number of country-specific institutional and trading factors. Our findings have crucial implications for global portfolio managers, investors, poly-makers and regulatory authorities.

KW - Global gold markets

KW - Macroeconomic variables

KW - Random walks and martingales

KW - Weak-form efficiency

KW - Variance-ratios

KW - Ranks and signs

U2 - 10.1016/j.irfa.2015.03.013

DO - 10.1016/j.irfa.2015.03.013

M3 - Article

VL - 41

SP - 218

EP - 236

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

SN - 1057-5219

ER -