Research On The Leverage Effect Of The Gold Price Yields

Before the19th century, gold was the symbol of nobility and imperial power and later it became the means of payment worldwide, functioning as the world currencies by virtue of its currency property. But after1971, the connection broken between the gold and dollar, the functions of gold began to transform towards storage and preservation values. The gold demand structure had greatly beeb affected and changed towards the investment areas since the Asian and American financial crisis in1997and2008with the dollar depreciating which increased the uncertainties of the global economies. As an emerging investment the gold has formed the unique market The characteristics of the gold market, especially the leverage effect of the gold price yields, have been studied deeply within this paper. In order to lay the foundation of the purpose and direction of the study, this paper also discusses the gold properties, the characteristics of the main gold markets in the world, the participants of gold markets and the factors of gold price. The key idea of the paper is to research whether the gold markets in the China and in the U.S. have the leverage effect, in another word,to study whether the gold price yields’volatility exists asymmetry in terms of the good news and the bad news.As for the empirical analysis, the author select the best model among the TGARCH, EGARCH and PGARCH. The three models are all the suitable models that can be employed to study the leverage effect.In the paper, the author select the best model under the AIC criterion, which can help to choose the fittest model. In order to correct the model, the author add exogenous variables which are the long-term factors of the gold price yields from2003to2013to the model. The significant factors of the gold price yields are selected by general linear regression in terms of the dollar index, stock price index, the price of the oil, commodity price index which have been studied previously by other researchers. Most of the researchers did not consider the assumption of the residuals when they established the equation. So the estimated result cannot reflect the real effect. In order to avoid the wrong result, the author take into consideration the characteristics of the distribution of the residual discuss the results underdifferent distributions of the residuals and finally choose the best one.As for the data, the author choose the spot and futures data in the China and America gold markets from2008to2013.The reasons are as follows:first,China’s gold consumption ranks the first in the world, and more and more people invest in the gold market because of the high CPI.Second, the U.S. Gold market has a long history, and it has the maximum future gold transaction volume, which can highly affect the gold price in the world. Meanwhile, the dollar is the most relevant currency to the gold.After the empirical analysis of the leverage effects of the China and U.S. gold markets both in spot and future, the author finally draw the conclusion that the spot and the future gold market in China do not have the leverage effect, that is to say, the gold price yields’ volatility do not exist asymmetry in terms of the good news and the bad news;and the spot gold market in the U.S. has the leverage effect, while the future gold market in the U.S. do not. On the basic of the conclusion, the author make theoretic analysis of the conclusion and manage to explain the differences between gold market in China and that in the America both in spot and future gold. In the last part of the paper, the author make some recommendations and guidances to the Chinese investors based on the conclusion and analysis of this research.