Gold Exchange Traded Fund - Price Discovery and Performance Analysis

Mathew Mallika, M. M. Sulphey

Abstract


The paper aims to examine the price discovery process and the performance of Gold Exchange Traded Funds especially with respect to two Gold ETFs, namely, Goldman Sachs Gold Exchange Traded Scheme (GoldBeEs) and SBI Gold Exchange Traded Scheme (SBIGETS), for the period 2009 – 2016. The study has employed Johansen cointegration and Johansen’s Vector Error Correction Model (VECM) for the price discovery analysis. The results of VECM reveal that the spot prices lead the Gold ETFs price during the study period. Tracking Error analysis shows that Gold ETFs have neither outperformed nor underperformed the spot price. Price Deviation analysis indicates that Gold ETFs are trading on an average lower than the spot price of gold. The entire analysis reveals that although the price discovery takes place in the spot market, Gold ETFs have performed as well as physical gold and the slight difference in price with that of Gold is only because of certain fees, which are applicable in the management of Gold ETFs.


Keywords


Gold Exchange Traded Funds; price discovery; price deviation.

JEL Codes


G130

Full Text:

PDF

References


Aber, J. W., Li, D., and Can, L., 2009. Price volatility and tracking ability of ETFs. Journal of Asset Management, 10(4), 210-221.

Buckle, M., Chen, J., Guo, Q., and Tong, C., 2018. Do ETFs lead the price moves? Evidence from the major US markets. International Review of Financial Analysis, 58, 91-103. http://dx.doi.org/10.1016/j.irfa.2017.12.005

Buetow, G. W., and Henderson, B. J., 2012. An Empirical Analysis of Exchange-Traded Funds. The Journal of Portfolio Management, 38(4), 112-127. http://dx.doi.org/10.3905/jpm.2012.38.4.112

Charteris, A., 2013. The Pricing efficiency of South African exchange traded funds. Investment Analysis Journal, 78, 17-26.

Charupat, N., and Miu, P., 2011. The Pricing and Performance of Leveraged Exchange-Traded Funds. Journal of Banking & Finance, 35(4), 966-977. http://dx.doi.org/10.1016/j.jbankfin.2010.09.012

DeFusco, R. A., Ivanov, S. I., and Karels, G. V., 2011. The exchange traded funds' pricing deviation: Analysis and forecasts. Journal of Economics and Finance, 35(2), 181-197. http://dx.doi.org/10.1007/s12197-009-9090-6

Deville, L., 2008. Exchange Traded Funds: History, Trading,and Research. In C. Zopounidis, M. Doumpos and P. M. Pardalos (Eds.), Handbook of Financial Engineering (pp. 67-98): Springer. http://dx.doi.org/10.1007/978-0-387-76682-9_4

Dickey, D. A., and Fuller, W. A., 1979. Distribution of the Estimations for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 47, 427-431.

ESMA, 2012. Guidelines for competent authorities and UCITS management companies. ESMA’s guidelines on ETFs and other UCITS issues. https://www.esma.europa.eu/sites/default/files/library/2015/11/2012-832en_guidelines_on_etfs_and_other_ucits_issues.pdf.

Eswara, M., 2015. An empirical study on performance of gold ETFs in India-post crash period. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2679686

Frino, A., and Gallagher, D. R., 2001. Tracking s&p 500 index funds getting your inoney's worth? Journal of Portfolio Management, 28(1), 44-55. http://dx.doi.org/10.3905/jpm.2001.319822

Goyal, A., and Amit, J., 2011. Performance Appraisal of Gold ETFS in India. Journal of Elixir Finance, 32, 2057-2060.

Hasbrouck, J., 1995. One Security, Many Markets:Determining the contributions to Price Discovery. The Journal of Finance, 50(4), 1175-1199. http://dx.doi.org/10.1111/j.1540-6261.1995.tb04054.x

Ivanov, S. I., 2013. The influence of ETFs on the price discovery of gold, silver and oil. Journal of Economics and Finance, 37(3), 453-462. http://dx.doi.org/10.1007/s12197-011-9205-8

Jena, S. K., Tiwari, A. K., and Roubaud, D., 2018. Comovements of gold futures markets and the spot market: A waveket analysis. Finance Research Letters, 24, 19-24. http://dx.doi.org/10.1016/j.frl.2017.05.006

Johansen, S., 1988. Statistical Analysis and Cointegrating Vectors. Journal of Economic Dynamics & Control, 12(2-3), 231-254. http://dx.doi.org/10.1016/0165-1889(88)90041-3

Johansen, S., 1991. Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59(6), 1551-1580. http://dx.doi.org/10.2307/2938278

Johansen, S., 1995. Likelihood-Based Inference in Cointegrated Vector Autoregressive Models. Oxford: Oxford University Press. http://dx.doi.org/10.1093/0198774508.001.0001

Johansen, S., and Juselius, K., 1990. 'Maximum Likelihood Estimation and Inference on Cointegration with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210. http://dx.doi.org/10.1111/j.1468-0084.1990.mp52002003.x

Larsen, G. A., and Resnick, B. G., 1998. Empirical Insights on Indexing: How Capitalization, Stratification and Weighting Can Affect Tracking Error. Journalof Portfolio Management, 25(1), 51-60.

Lau, M. C., Vigne, S. A., Wang, S., and Yarovaya, L., 2017. Return spillovers between white precious metal ETFs: The role of oil,gold and global equity. International Review of Financial Analysis, 52(C), 316-332. http://dx.doi.org/10.1016/j.irfa.2017.04.001

Narend, S., and Thenmozhi, M., 2013. Performance and Price Discovery of Gold Exchange Traded Funds: Available at SSRN. http://dx.doi.org/10.2139/ssrn.2370337

Naylor, M., Wongchoti, U., and Gianotti, C., 2011. Abnormal Returns in Gold and Silver Exchange Traded Funds. Journal of Index Investing, 2(2), 1-34.

Prasanna, K. P., 2012. Performance of Exchange Traded Funds in India. International Journal of Business and Management, 7(23), 122-141. http://dx.doi.org/10.5539/ijbm.v7n23p122

Purohit, H., and Malhotra, N., 2015. Pricing Efficiency & Performance of Exchange Traded Funds in India. The IUP Journal of Applied Finance, 21(3). https://ssrn.com/abstract=2671810.

Schlusche, B., 2009. Price Formation in Spot and Futures Markets: Exchange Traded Funds versus Index Funds. Journal of Derivatives, 17(2), 26-40. http://dx.doi.org/10.3905/JOD.2009.17.2.026

Shin, S., and Soydemir, G., 2010. Exchange-Traded Funds, Persistence in Tracking Errors and Information Dissemination. Journal of Multinational Financial Management, 20, 214-234.

Skouratova, E., Tse, Y., and Martinez, V., 2009. Market competition in crude oil futures. http://www.fma.org/Texas/Papers/Price_Discovery_Crude_Oil_Futures.pdf.

Stock, J. H., and Watson, M. W., 1993. A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems. Econometrica, 61(4), 783-820. http://dx.doi.org/10.2307/2951763

Subrahmanyam, A., 1991. A Theory of Trading in Stock Index Futures. Review of Financial Studies, 4(1), 17-51. http://dx.doi.org/10.1093/rfs/4.1.17

Svetina, M., 2010. Exchange Traded Funds: Performance and Competition. Journal of Applied Finance (JAF), 20(2), 130-145.

Tse, Y., Bandyopadhyay, P., and Shen, Y. P., 2006. Intraday Price Discovery in the DJIA Index Markets. Journal of Business Finance & Accounting, 33(9-10), 1572-1585. http://dx.doi.org/10.1111/j.1468-5957.2006.00639.x

Wiese, V., 1978. Use of Commodity Exchanges by Local Grain Marketing Organizations. In A. Peck (Ed.), Views from the Trade. Chicago: Board of Trade of the City of Chicago.

Wong, K. H., and Shum, W. C., 2010. Exchange-traded funds in bullish and bearish markets. Applied Economics Letters, 17(16), 1615-1624. http://dx.doi.org/10.1080/13504850903085035

Working, H., 1948. Theory of the inverse carrying charge in futures markets. Journal of Farm Economics, 30(1), 1-28. http://dx.doi.org/10.2307/1232678




DOI: http://dx.doi.org/10.2478/saeb-2018-0024

Refbacks

  • There are currently no refbacks.