Malek Lashgari

Information from successive changes in gold and silver prices during phases of the business cycles

This paper concerns the behavior of gold and silver prices on a daily, weekly and monthly time span during January 1970 to December 1989. The methodology consists of extracting the predictive power of time series of changes in past prices for obtaining optimal forecasts for next-period changes in prices. Optimizations are made in the context of information theory via minimizing the degree of diversity between the actual and predicted changes in prices. This methodology has merit in that it does not rest on, generally speaking, unacceptable assumptions regarding the shape of the distribution, stationarity of variance or its existence. The behavior of gold and silver prices are studied during peak to trough and trough to peak of the business cycles over 1970–1989. It is generally shown that information contained in past prices of gold and silver does not allow one to predict next-period changes in prices in the short run. However, longer-term predictions are possible. This study further reveals that as the length of the time interval expands, gold prices exhibit a higher degree of dependency on past prices than silver.

Information content of U.S. treasury inflation-indexed bonds

U.S. Treasury inflation-indexed bonds are designed to provide a stable real return before taxes. A comparison between these bonds and conventional bonds reveals that the effective real yield of U.S. Treasury inflation-indexed bonds is attractive. The econometric results suggest, however, that the real rate provided by U.S. Treasury inflation-indexed bonds is not independent of inflation, implying that the Fisher hypothesis is contradicted by the data. An implication of negative correlation between the real rate and inflation is that the time to buy U.S. Treasury inflation-indexed bonds is when inflation is low. While the yields on U.S. Treasury inflation-indexed bonds are shown to reflect inflation by a lag of about one month, nominal interest rates do not fully adjust to inflation.

Gold investing behavior over the phases of the business cycle

This study is concerned with gold investment behavior over the phases of the business cycle during 1970-85, and draws certain conclusions regarding golds inflation-hedging property as well as its substitutability with Treasury bills. The hypotheses tested are: First, when the economy is on the road to recovery, gold is likely to be a hedge against inflation. Second, in the downturn of economic activities, Treasury bills seem to be a good substitute for gold as an inflationhedged investment. An alternative interpretation would be that gold is not a hedge against inflation at all times, indicating the importance of timing of purchases and sales of gold. These hypotheses were tested using linear regression analysis. Discontinuous sampling, covering peaks to troughs and troughs to peaks for the period of 1970-85, were utilized to reflect the phases of the business cycle. The estimated equations are: