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Application of ARIMA and GARCH Models to forecast the Gold Futures Prices

Application of ARIMA and GARCH Models to forecast the Gold Futures Prices. Dr. Nupur Hetamsaria (ICFAI Business School, Hyderabad) & Mithun Maity (Karvy Comtrade, Hyderabad) NICR Workshop, October 10 th 2007. Gold: An Investment Tool. Equities and Commodities

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Application of ARIMA and GARCH Models to forecast the Gold Futures Prices

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  1. Application of ARIMA and GARCH Models to forecast the Gold Futures Prices Dr. Nupur Hetamsaria (ICFAI Business School, Hyderabad) & Mithun Maity (Karvy Comtrade, Hyderabad) NICR Workshop, October 10th 2007 Nupur Hetamsaria & Mithun Maity

  2. Gold: An Investment Tool • Equities and Commodities • Gold forms 45% of total futures trading globally • An effective hedging tool • Higher liquidity than other real assets • Oil price impact on Gold • Resale value of Gold • Forecasting the future Gold prices Nupur Hetamsaria & Mithun Maity

  3. Data and Methodology • Daily prices from NYMEX and COMEX • 14 years, appx. 3500 data points • ARIMA • GARCH Nupur Hetamsaria & Mithun Maity

  4. Price Graph of Gold Prices Nupur Hetamsaria & Mithun Maity

  5. Stationarity • Gold Price series is not stationary. • First Difference of the price series. Nupur Hetamsaria & Mithun Maity

  6. Nupur Hetamsaria & Mithun Maity

  7. Nupur Hetamsaria & Mithun Maity

  8. Normality Kurtosis high, indicating a ‘fat tail’ distribution or a leptokurtic distribution. Nupur Hetamsaria & Mithun Maity

  9. Correlogram Nupur Hetamsaria & Mithun Maity

  10. Nupur Hetamsaria & Mithun Maity

  11. Heteroscedasticity Nupur Hetamsaria & Mithun Maity

  12. GARCH: Mean equation Nupur Hetamsaria & Mithun Maity

  13. GARCH (1,1) Nupur Hetamsaria & Mithun Maity

  14. Nupur Hetamsaria & Mithun Maity

  15. Performance of In sample forecast Nupur Hetamsaria & Mithun Maity

  16. Performance of out of sample forecast Nupur Hetamsaria & Mithun Maity

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