Can Security Analyst Forecasts Predict Gold Returns?

10 Pages Posted: 17 Jan 2017

See all articles by George Mihaylov

George Mihaylov

University of Adelaide

Chee Seng Cheong

University of Adelaide - Business School; Financial Research Network (FIRN)

Ralf Zurbruegg

University of Adelaide; Financial Research Network (FIRN)

Abstract

This paper examines whether security analyst earnings forecasts for firms primarily operating in the gold market can be utilised to predict returns on the price of gold.We first demonstrate that analysts are at least in part basing their earnings forecasts for gold firms on the return expectations of the gold commodity market.We show this by providing evidence that analyst coverage impounds not only market-wide and industry information, but also gold price information for these firms—as measured via its impact on stock return synchronicity.We then examine if the difference between forecast and observed earnings for these firms has predictive value for changes in the price of gold whilst controlling for a number of macroeconomic factors. We find that this difference does hold predictive power, but also has some limitations. However, there is potential for it to be used as an additional variable within gold forecasting frameworks.

Keywords: Gold price, Forecasting, Stock return synchronicity, Analyst coverage

JEL Classification: G12, G17

Suggested Citation

Mihaylov, George and Cheong, Chee Seng and Zurbruegg, Ralf, Can Security Analyst Forecasts Predict Gold Returns?. International Review of Financial Analysis, Vol. 41, 2015, Available at SSRN: https://ssrn.com/abstract=2875969

George Mihaylov (Contact Author)

University of Adelaide ( email )

233 North Terrace
Department of Finance
Adelaide, SA 5005
Australia
+61 8 8313 2056 (Phone)

HOME PAGE: http://www.adelaide.edu.au/directory/george.mihaylov

Chee Seng Cheong

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Ralf Zurbruegg

University of Adelaide ( email )

233 North Terrace
Department of Finance
Adelaide SA 5005
Australia
+61 8 8303 5535 (Phone)
+61 8 8303 4368 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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