Re-examining the real option characteristics of gold for gold mining companies. (March 2021)

• Record Type: Journal Article
• Authors: Shahzad, Syed Jawad Hussain; Rahman, Md Lutfur; Lucey, Brian M.; Uddin, Gazi Salah
• Is Part Of: Resources policy. Volume 70(2021)
• Publication Date: 2021-03
• Subjects: Gold price -- Gold mining stock price -- Asymmetric relation -- Cross-quantilogram -- Rolling estimation; C12 -- C58 -- Q02 -- L61; Mines and mineral resources -- Periodicals; Ressources minérales -- Périodiques; Ressources naturelles -- Gestion -- Périodiques; Environnement -- Politique gouvernementale -- Périodiques; 333.8
• DOI: 10.1016/j.resourpol.2020.101890
• Languages: English
• ISSNs: 0301-4207

Abstract

Abstract: This paper re-examines the static and time-varying asymmetries in quantile-specific relationship between gold returns and gold mining companies' stock returns. In doing so, we use novel cross-quantilogram approach that is built on quantiles of both distributions and control for the effect of crude oil price changes, overall stock market movements, stock market volatility and economic policy uncertainty. We find that the gold returns negatively predict the gold stock returns around the median quantile. Whereas the gold returns positively depend on the gold mining companies' stock returns in the low and high quantiles. We therefore, support for an embedded real option in gold for gold mining companies which is time-varying and occurs in very short-run. This finding is useful for devising portfolio allocation and diversification strategies. Highlights: Do gold prices influence gold mining stocks? Examine quantile specific asymmetries resulting from embedded real option characteristics. Use cross-quantilogram and control for different macro-financial factors. Heterogeneous dependence across quantiles confirm presence of real option features. These asymmetries are pronounce in short-run and are time-varying.