Informational efficiency of gold markets in Paris and London, 1948-2008: Econometric verification of weak form

Abstract

The rationality of the operators and the information disseminated on the market are at the heart of the theory of the informational efficiency of the financial markets. Gold markets are no exception to this general rule. Being a very particular asset and very different from other financial assets, the price of gold has in its history several excessive movements, either upward or downward, which challenge the assumption of informational efficiency. . This is the heart of this paper which seeks to test the weak form of the informational efficiency of the gold markets in Paris and London for a period of 61 years from 1948 to 2008.

The results of the Ljung-Box tests show that there is a first order autocorrelation in the monthly profitability series of the Napoleon gold coin in Paris as well as an ounce of gold at the fixing of the noon in London. Conditional heteroskedasticity is detected on monthly returns by the ARCH effect test. The assumption that prices follow a random walk is not accepted by the Augmented Dickey-Fuller (ADF) test. These results lead to the conclusion that the hypothesis of the informational efficiency of the weak form of the gold markets in Paris and London over the period from 1948 to 2008 can not be accepted. But the results of the test performed on the CAPM model show that French investors can not take advantage of this informational inefficiency to make abnormal profits (except over the period from 1971 to 1981). This is not the case for gold investors in London (except for the period from 1981 to 2004).