Public Information Arrival and Gold Market Returns in Emerging Markets: Evidence from the Istanbul Gold Exchange. Kutan and Aksoy (2004)
This 2004 paper is one of the few papers not to use either COMEX or Fixings data for gold prices, instead using data from the Istanbul Gold Market. The abstract states that:
Using daily data, we examine the impact of consumer price index (CPI) releases on gold market returns and volatility in an emerging, high-inflation economy, Turkey. We find that the Istanbul Gold Exchange (IGE) does not respond significantly to the release of the CPI news, indicating that the market is not a good hedge against inflation. We also examine the response of the gold market to other public information arrival critical to Turkish economy, such as GNP, balance of trade and tourism. The gold market reacts to public information arrival about GNP and balance of trade, suggesting that real sector news has important effects on the market. Implications of these findings for market participants are discussed.
This gives an examination of the reaction of the gold price to news in a high inflation economy, particularly news on Turkish CPI. The authors found that the only news that affected gold returns significantly was industrial productions which had a negative relationship to the price of gold.
Based on this data the Istanbul gold market is not found to be a good hedge for Turkish inflation over the 5 year period under examination. This fits with the findings of Levin and Wright (2006) that the price of gold is related to inflation only in the long term.
It also may be possible that as gold is such an international commodity only new releases from the largest economies such as the US (as studied by Christie-David, Chaudhry and Koch (2000)) are what effect the gold price.
One issue with the paper is that it does not make it clear whether the returns are from the lira gold price or dollar gold price, both of which are available from the Turkish Central Bank website. It does say that mean difference between London and Turkish market gold returns was less than 0.20 percent over the period under examination making it likely that the returns are based on the dollar price.
Method: Lead Lag GARCH (1,1) model.
Data: Daily Closing prices of gold from the CB of the Republic of Turkey from 2/1/96 – 14/2/01. Announcements are from the State Institute of Statistics, Turkey.
Full Citation: Kutan, A. M. and T. Aksoy (2004). “Public Information Arrival and Gold Market Returns in Emerging Markets: Evidence from the Istanbul Gold Exchange.” Scientific Journal of Administrative Development 2: 13-26.