Will Precious Metals Shine? A Market Efficiency Perspective

Abstract

Precious metals (gold, silver, and platinum) have become an important part of investment portfolios for individuals as well as for institutions. This paper examines the weak-form efficiency of precious metals markets, using the automatic portmanteau and variance ratio tests. It is found that return predictability of these markets has been changing over time, depending on the prevailing economic and political conditions. The return predictability of gold and silver markets have been showing downward trends, implying that the degree of the weak-form efficiency of these markets have been gradually improving. In particular, the gold market has been highly efficient recently, showing the highest degree of market efficiency among the three precious metals markets.

Impact of COVID-19 outbreak on asymmetric multifractality of gold and oil prices

“…Specifically, we observe that the upward Hurst exponent is higher than the downward Hurst exponent for negative scales, while the inverse case is observed for positive scales. These results are consistent with those of Charles et al, 2015a , Charles et al, 2015b who find dynamic return predictability of precious metals (gold, silver, and platinum). They also show that the return predictability of gold and silver shows a downside trend, indicating improve in efficiency level.…”

“… Tabak and Cajueiro (2007) and Charles and Darne (2009) find evidence of time-varying efficiency. Charles et al (2015a , b) find that the return predictability of precious metals is time varying and that the efficiency degree of gold and silver enhance over time. Baruník et al (2012) shows that technical indicators, diffusion indices, and economically motivated restrictions in predictive regressions do not provide accurate predictability of gold excess returns.…”

“…Lucey (2011) , Baur et al (2016) , Peirdzioch et al ( 2014 ) have also explored the predictability of gold prices. Charles et al, 2015a , Charles et al, 2015b examine the efficiency of main precious metals (gold, silver, and platinum) have become an important part of investment portfolios for individuals as well as for institutions. This paper examines the weak-form efficiency of precious metal markets, using the automatic portmanteau and variance ratio tests.…”

The financial economics of white precious metals — A survey

“…Results from daily, weekly and biweekly data between the mid 1970's and the mid 1980's for silver point to the possibility of an underlying martingale process, indicating that a nonlinear process generates observed silver returns and price of silver is an unpredictable stochastic variable. Charles et al (2015) brings this research up to date looking at daily spot prices for silver and platinum between 1977 and 2013. They test for weak-form efficiency using the automatic Portmanteau test Lobato et al (2001) for the presence of conditional heteroscedasticity.…”

High‐frequency trading from an evolutionary perspective: Financial markets as adaptive systems

“…The AMH has substantially gained attention in the recent literature, with a number of papers supporting the hypothesis in developed stock markets (e.g., Ito & Sugiyama, ; Kim, Shamsuddin, & Lim, ; Urquhart, ; Urquhart & Hudson, & Urquhart & McGroarty, ), developing stock markets (Dyakova & Smith & ; Hull & McGroarty, ; Smith, , ), foreign exchange markets (Charles, Darné, & Kim, ; Levich & Poti, ), and even precious metal markets (Charles, Darné, & Kim, ; Urquhart, ).…”