Mood and Precious Metal Prices. 2011.
This paper looks at whether mood factors effect the pricing of all 4 precious metals: Gold, silver, Platinum and Palladium. Weather and biorhythms have been shown to play a role in price formation for equities, as well as sporting results. The authors use daily data covering 1973-2010 for gold and silver, and from 1986 for platinum and palladium. Yew York prices are used for all expect Gold where the London Am fixings Price is used.
Using an Asymmetric Power GARCH model, following Tully and Lucey (2007), they find that there is very limited evidence for mood effects in precious metals pricing. Mondays have a significant effect on Gold and Palladium but in opposite directions. Gold is positively effected and palladium negatively.
The authors posit that the reason that equities are effected by the mood of investors, but not precious metals, relates to the size of investor in the market. The average investor using the Am fixing was £12m in 2010 while for the London Stock Exchange was $7,000. Small investors face greater uncertainty in pricing assets and may be more effected by their mood.
Method: APGARH Model
Data: Daily data. Gold 1973-2010 London Am Fixing. Silver 1976-2010 NYMEX. Platinum and Palladium 1986-2010 NYMEX. Mood Proxies: US National Climactic Data Centre.
Full Citation: Lucey, Brian, and Michael Dowling. “Mood and Precious Metal Prices.” Available at SSRN 1923788 (2011).
Abstract: We investigate whether proxies for mood play a role in the pricing of gold, silver, platinum and palladium. Using several mood proxies derived from weather and biorhythms factors, our tests suggest some individually significant relationships, but with very low overall explanatory power. We conclude that, unlike in equity pricing, there does not appear to be, at this stage, a role for mood proxies in further developing our understanding of precious metal pricing.