Laurence E. Blose

The impact of gold price on the value of gold mining stock

Abstract The value of a gold mine is shown to be a function of the return on gold, production costs, the level of gold reserves, and the proportion of assets unrelated to gold price risk. Assuming that forward gold prices are the markets unbiased expectations of future spot prices, a model is derived that estimates the theoretical gold price elasticity of gold mining stock. The model shows that if a companys primary business is gold mining, the gold price elasticity of the companys stock is greater than one. Using monthly data over the ten year period 1981 through 1990, the model is tested for a sample of 23 publicly traded gold mining companies.

Gold price risk and the returns on gold mutual funds

Abstract A model is presented for estimating the theoretical gold price elasticity of the value of mutual funds investing in gold mining companies. The theoretical elasticity shows that if the funds invest in companies whose assets are comprised primarily of operating gold mines, then the return of an investment in the fund will be at least as great as an investment in gold (i.e., the gold price elasticity of the gold fund is greater than 1). Empirical tests of the above propositions are presented. Empirical tests also show, however, that the gold mutual funds contain a substantial amount of risk which is not explained either by market risk or gold price risk. Accordingly, gold mutual funds and gold bullion do not bring identical risks to an investors portfolio.

Catastrophic events, contagion, and stock market efficiency: the case of the space shuttle challenger

Abstract This study examines the stock returns experienced by NASA contractors associated with the Space Shuttle Challenger explosion. Because of the extensive public interest in the explosion and the intensive and stirring news coverage, this event is a candidate for an irrational market response such as a selloff, a panic, or a contagion effect. The market evidence shows that on the day of the explosion, there was a significantly negative average abnormal return on the stock of NASA contractors. Any contagion effect was limited to a very narrow set of NASA contractors who received more than 5% of their 1995 revenues from NASA. Furthermore, the market was able to identify within days after the event that the single firm most likely to be affected by the event was Morton Thiokol Corporation.

Information asymmetry, capital adequacy, and market reaction to loan loss provision announcements in the banking industry

Abstract This study finds significantly negative abnormal returns accompanying press announcements of loan loss provisioning in the banking industry. The negative reactions are shown to arise from both an informational asymmetry regarding asset value and the costs associated with capital adequacy regulation. It is further shown that the market reaction depends upon the type of asset being provisioned. Announcements regarding the provisioning of foreign debt are accompanied by positive market reactions, while announcements of the provisioning of real estate loans and other types of debt are accompanied by negative market reactions.