Can Security Analyst Forecasts Predict Gold Returns?
10 Pages Posted: 17 Jan 2017
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
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