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Determinants of the Gold Futures Price Volatility: The Case of Thailand Futures Exchange

Applied Economics Journal

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Field Value
 
Title Determinants of the Gold Futures Price Volatility: The Case of Thailand Futures Exchange
 
Creator Jongadsayakul, Woradee; Faculty of Economics, Kasetsart University, Bangkok 10900
 
Subject futures price volatility, gold futures, Samuelson hypothesis
C32, G13, G32
 
Description This research studies determinants of the gold futures price volatility in Thailand Futures Exchange using Linear Regression Model and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) Model. The data sample consists of daily settlement price, volume, and open interest of gold futures from the first trading day in Thailand Futures Exchange to June 26, 2013. We examine the nearby futures contract, which is switched over to the next maturing contract one day before the expiration date. The results of both models confirm that price returns volatility of gold futures increases when (1) the futures contract approaches expiration (2) trading volume increases and (3) open interest decreases. We also present an analysis of the role of covariance between changes in spot prices and carry costs in explaining the maturity effect in futures. Our results provide very strong evidence in favor of this negative covariance hypothesis. Therefore, the results of this study would be of interest to investors due to their importance to forecast future prices of gold. Hedgers should adjust their optimal hedging position according to volatility changes. The analysis of gold futures volatility also insists the Clearing House in setting different margin requirements as each contract approaches maturity differently. Margin requirements should be raised for nearby gold futures contract as its volatility increases. Either an increase in trading volume or a decrease in open interest should also increase margin requirements for gold futures.
 
Publisher The Center for Applied Economics Research (CAER)
 
Contributor —
 
Date 2016-05-20
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.tci-thaijo.org/index.php/AEJ/article/view/57237
 
Source Applied Economics Journal; Vol 21, No 1 (2014): June; 59-78
0858-9291
 
Relation http://www.tci-thaijo.org/index.php/AEJ/article/view/57237/47444
 
Rights Copyright (c) 2016 Applied Economics Journal
http://creativecommons.org/licenses/by-nc-nd/4.0