Speculative bubbles and the markets for precious metals.
This thesis investigates the presence of speculative
bubbles in the prices of precious metals. The investigation
develops in three stages. First, we present the theoretical
framework. Second, we carry out an institutional analysis of
the gold market. Third, we conduct an econometric
investigation using a comprehensive new data set of the prices
of gold, silver and platinum.
Speculation is a phenomenon strictly related to
expectations. Hence, the natural theoretical framework for
the study of speculative bubbles begins with a theory of
expectations. The theory of speculative bubbles emerges from
the non-uniqueness of solutions to rational expectations
models. We present the theoretical background on the problem
of multiple solutions to rational expectations models. We
then critically examine the theoretical and empirical
literature on speculative bubbles, pointing out the questions
still unanswered in the field.
The high volatility and the presumed speculative
attacks in the 1970's and 1980's make the prices of gold,
silver and platinum a natural choice for investigating the
presence of speculative bubbles. An institutional analysis of
the gold market show the complexity of the factors
determining its price.
This thesis adopts two empirical approaches. The
first concerns tests of the restrictions that the presence of
speculative bubbles impose on the prices of precious metals.
In particular, it applies non-parametric tests in the spirit
of the Blanchard and Watson (1982) approach to test for
bubbles in the price of gold. Their results are contradictory
and overall show little evidence of bubbles in the price of
gold. In contrast, our results indicate the presence of
speculative bubbles in the prices not only of gold, but also
of silver and platinum. The second approach which, to our
knowledge, has not previously been explored, consists of
inferring the presence of bubbles through a comparison of the
market fundamentals and the price movements of the three
metals. The results provide evidence of the presence of