Gold Mining Companies and the Price of Gold
23 Pages Posted: 27 Feb 2012 Last revised: 7 May 2014
Date Written: May 7, 2014
This paper studies the exposure of Australian gold mining ﬁrms to changes in the gold price. We use a theoretical framework to formulate testable hypotheses regarding the gold exposure of gold mining ﬁrms. The empirical analysis based on all gold mining ﬁrms in the S&P/ASX All Ordinaries Gold Index for the period from January 1980 to December 2010 ﬁnds that the average gold beta is around one but varies signiﬁcantly through time. The relatively low average gold beta is attributed to ﬁrm’s hedging and diversiﬁcation. We further ﬁnd an asymmetric eﬀect in gold betas, i.e. the gold exposure increases with positive gold price changes and decreases with negative gold price changes consistent with gold mining companies exercising real options on gold.
Keywords: gold, gold-mining stocks, asymmetric payoff, real options, exchange-traded funds
JEL Classification: C21, C22, F31, L61, L71
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