GOLD PRICES & REGIME SHIFTS WITH MARKOV MODEL: A STUDY IN THE INDIAN CONTEXT
Abstract
We use the daily gold prices from 1979 till April 2018. We use the Markov switching model to understand the shifts in the states. We observe that there are two regime states. We predict the probabilities of being in different states and the probability of moving from one state to another. We use the dynamic regression model of Markov process as our data is of high frequency. We found to have two regimes in the gold prices and the probability of remaining in the same state is very high and that when there is a regime shift the probability of going back to the old regime is very less. Our results indicate that if there is shift in the regime the probability of prices going back to the first regime prices is very low. This study provides a good insight of gold prices and shifts in the regimes with probabilities and duration which would be of immense use for investors. In the review of literature, we have not come across studies in relation to regime shift of gold prices, therefore the study would be a contribution to the existing literature.
Keywords:
Gold Price, Stochastic Model, Markov ModelDownloads
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