Do Bubbles Occur in the Gold Price? An Investigation of Gold Lease Rates and Markov Switching Models

21 Pages Posted: 2 Dec 2012 Last revised: 11 Jul 2015

See all articles by Brian M. Lucey

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Sydney Business School; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Fergal A. O'Connor

University College Cork; University of York - The York Management School; University of Dublin - Business School and Institute for International Integration Studies

Date Written: December 1, 2012

Abstract

We assess whether two classes of bubbles occur in the spot price of gold, rational speculative and periodically bursting bubbles, using gold’s’ lease rates for the first time in the literature as a measures of its fundamental value. This question is of particular significance as these are the only observable market measures of a yield that can be earned by owning gold. We use tradition unit root and cointegration tests for rational speculative bubbles and Markov Switching Augmented Dickey-Fuller tests for periodically bursting bubbles. Bubbles are found to possibly exist for in ADF and cointegration bubble tests, but under the markov switching model no bubble found to be present.

Keywords: Gold,  Markov, Switching, Bubbles, Lease, Rates

JEL Classification: C01, F49, G12, G15

Suggested Citation

Lucey, Brian M. and O'Connor, Fergal A., Do Bubbles Occur in the Gold Price? An Investigation of Gold Lease Rates and Markov Switching Models (December 1, 2012). Available at SSRN: https://ssrn.com/abstract=2183597 or http://dx.doi.org/10.2139/ssrn.2183597

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

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University of Sydney Business School ( email )

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Ho Chi Minh City University of Economics and Finance ( email )

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Jiangxi University of Finance and Economics ( email )

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Fergal A. O'Connor

University College Cork ( email )

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Cork
Ireland

University of York - The York Management School ( email )

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Heslington
York, North Yorkshire YO10 5DD
United Kingdom

University of Dublin - Business School and Institute for International Integration Studies ( email )

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Dublin, Leinster D2
Ireland

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