Analysis Of Volatility Characteristic And Research Of Risk Investment In Gold Market

Gold market, as an option for investment to against inflation and avoid risk, is becoming more and more important under complex global environment. Hence analysis of the trend of gold price and risk measurement is always the very essential thing of gold market investment. This paper conducts an empirical study on the spot trading and futures trading in gold market from two perspectives:yield volatility and risk. Based on data sample of Au99.95 and gold futures 1106 contract of selected time range (9th Jan,2008 to 31st Feb,2010), we adopted GARCH family models and Granger Causality Test methods to analyze daily yield volatility characteristics of gold market during this period. It turned out that the yield series trends to be smooth and its vibrations are clustered. External impact to gold market will last for a long period. There are one-way spillover effects from gold spot trading market to futures trading market, while Gold futures market has a negative leverage effect. The empirical result proved that these models can forecast price of gold market well. As for gold market risk measurement, this paper inducts VaR calculation. Respectively we use parameter method, historical simulation and Monte Carlo simulation for risk measurement, and estimated the applicability of VaR models for gold market. The empirical result shows that the parameter method of T distribution is overestimating the risk in most cases, thus the model is not effective enough. Nevertheless, Monte Carlo method underestimated the possibility of large losses under the 95% confidence level. Thus investors can choose a proper way to measure risk of gold market investment based on the analysis of this article.