Article ID Journal Published Year Pages File Type
982236 The Quarterly Review of Economics and Finance 2014 14 Pages PDF
Abstract

•We study the link between the international business cycle and gold-price fluctuations.•We frame our analysis in terms of a real-time forecasting approach.•We develop a behavioral-finance approach to assess the economic value-added of forecasts.•We find that the gold market is informationally efficient with respect to international business-cycle fluctuations.

Drawing on recent empirical research, we study whether the international business cycle, as measured in terms of the output gaps of the G7 countries, has out-of-sample predictive power for gold-price fluctuations. To this end, we use a real-time forecasting approach that accounts for model uncertainty and model instability. We find some evidence that the international business cycle has predictive power for gold-price fluctuations. After accounting for transaction costs, a simple trading rule that builds on real-time out-of-sample forecasts does not lead to a superior performance relative to a buy-and-hold strategy. We also suggest a behavioral-finance approach to study the quality of out-of-sample forecasts from the perspective of forecasters with potentially asymmetric loss functions.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, , ,