Abstract
This paper analyzes the long-run relationship between gold and silver prices. We closely follow Escribano and Granger (J Forecast 17:81–107, 1998) and extend their study. We use a longer sample period from 1970 to 2011 and study the role of bubbles and financial crises for the relationship between gold and silver prices. We find clear evidence for a co-integration relationship between gold and silver with gold prices driving the relationship. The analysis also indicates that the results are influenced by bubble-like episodes and financial crises.
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Notes
See World Gold Council (www.gold.org) for more details.
Batten et al. (2012)) find evidence for fractional dependency between gold and silver prices which may be exploited for trading profit.
We assume that fundamental factors dominate in the long run and that investor behavior can influence the relationship merely in the short run.
Escribano and Granger (1998) call the period in which the silver market was cornered, roughly between June 1979 and March 1980, by the Hunt brothers a “bubble,” but note that the period does not completely correspond to the concept of a bubble found in the financial literature (p. 82).
The data are obtained from DataStream. The mnemonics are GOLDBLN and SLVCASH. The gold price is Gold Bullion US dollar per troy ounce and the silver price is Silver Fix cash US dollar cents per troy ounce.
We follow the terminology used by Escribano and Granger (1998) and call this period a “bubble.”
An alternative specification with silver prices on the left-hand side of the equation yields similar results for \(Z_t\).
The results are not reported due to space considerations.
The estimation results based on log prices yield similar qualitative results and can be obtained from the authors upon request.
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Baur, D.G., Tran, D.T. The long-run relationship of gold and silver and the influence of bubbles and financial crises. Empir Econ 47, 1525–1541 (2014). https://doi.org/10.1007/s00181-013-0787-1
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DOI: https://doi.org/10.1007/s00181-013-0787-1