DETERMINANTS OF GOLD PRICE USING SIMPLE AND MULTIPLE

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DETERMINANTS OF GOLD PRICE USING SIMPLE,AND MULTIPLE LINEAR REGRESSION. CHOONG PIK SAN,KWOO PUI YEE,PIONG CHEE KEAI,WONG WEN XUAN. A research project submitted in partial fulfillment of the. requirement for the degree of,BACHELOR OF BUSINESS ADMINISTRATION. HONS BANKING AND FINANCE,UNIVERSITI TUNKU ABDUL RAHMAN. FACULTY OF BUSINESS AND FINANCE,DEPARTMENT OF FINANCE.
Copyright 2012, ALL RIGHTS RESERVED No part of this paper may be reproduced stored in a. retrieval system or transmitted in any form or by any means graphic electronic. mechanical photocopying recording scanning or otherwise without the prior. consent of the authors,DECLARATION,We hereby declare that. 1 This undergraduate research project is the end result of our own work and that due. acknowledgement has been given in the references to ALL sources of information. be they printed electronic or personal, 2 No portion of this research project has been submitted in support of any. application for any other degree or qualification of this or any other university or. other institutes of learning, 3 Equal contribution has been made by each group member in completing the. research project,4 The word count of this research report is 18308.
Name of Student Student ID Signature,1 Choong Pik San 09ABB05944. 2 Kwoo Pui Yee 09ABB06634,3 Piong Chee Keai 09ABB07766. 4 Wong Wen Xuan 09ABB06629,Date 20th APRIL 2012,ACKNOWLEDGEMENT. First and foremost we appreciated those who had helped us throughout the. development of this research project The accomplishment of this research was. contributed by many parties Firstly we would like to express our gratitude to University. Tunku Abdul Rahman UTAR by giving us the chance to experience the process of. doing research Moreover throughout the research study we had learned much in the. related research topic in this project, Secondly we would like to thank our supervisor Ms Koay Ying Yin for her. assistant and supervision in guiding us in the process of this research project Her useful. advice and valuable guidance had helped us a lot in solving the problems we had. encountered when the research was conducted Not only that she also shared lots of. research experience with us Besides we would like to send our gratitude to our second. examiner Ms Loo Sook Kuan for her sincere suggestions in improving our research. Lastly we would like to thank those who had encouraged us during the. preparation of our thesis such as our course mates parents and librarian Their efforts in. helping us throughout the research were highly appreciated Without all the assistance. and guidance from them this project would never be easy for us. TABLE OF CONTENTS,Copyright Page ii,Declaration iii.
Acknowledgement iv,Table of Contents v,List of Tables x. List of Figures xi,List of Abbreviations xii,List of Appendices xiii. Abstract xiv,CHAPTER 1 INTRODUCTION 1,1 0 Introduction 1. 1 1 Research Background 1,1 2 Problem Statement 6,1 3 Research Objective 7. 1 3 1 General Objective 7,1 3 2 Specific Objective 8.
1 4 Research Question 8,1 5 Hypothesis of Study 9,1 6 Significance of Study 10. 1 7 Chapter Layout 11,CHAPTER 2 LITERATURE REVIEW 12. 2 0 Introduction 12,2 1 Review of the literature 12. 2 1 1 Gold price and inflation 13,2 1 2 Gold price and silver price 16. 2 1 3 Gold price and USA Dollar trade weighted index 17. 2 1 4 Gold price and Brent crude oil price 20,2 2 Review of Relevant Theoretical Model 22.
2 3 Proposed theoretical and conceptual framework 23. 2 4 Hypothesis Development 25,2 4 1 Gold price and Inflation 25. 2 4 2 Gold price and Silver Price 26, 2 4 3 Gold price and USA Dollar Trade Weighted Index 27. 2 4 4 Gold price and Brent Crude Oil Price 28,2 5 Conclusion 29. CHAPTER 3 METHODOLOGY 30,3 0 Introduction 30,3 1 Data Description 30. 3 2 Flow of Analysis 31,3 3 Simple Linear Regression 32.
3 3 1 General Equation 32, 3 3 2 Reasons of using simple linear regression 32. 3 3 3 Assumptions lying under simple linear regression 32. 3 3 4 Properties of least squares estimators 35,3 3 5 Hypothesis Testing 36. 3 3 5 1 Gold price and Inflation 36,3 3 5 2 Gold price and Silver Price 36. 3 3 5 3 Gold price and USA dollar trade weighted index 36. 3 3 5 4 Gold price and Brent crude oil price 37,3 4 Multiple Linear Regression 37. 3 4 1 General Equation 37, 3 4 2 Reasons of using multiple linear regression 37.
3 4 3 Assumptions lying under multiple linear regression 38. 3 4 4 Hypothesis Testing 39,3 4 4 1 Test on the significance of individual. independent variable t test 39, 3 4 4 2 Test on the overall significance of Multiple. Linear Regression Model F test 40,3 4 5 Diagnosis Checking 40. 3 4 5 1 Multicollinearity 40,3 4 5 2 Heteroskedasticity 41. 3 4 5 3 Autocorrelation 42,3 4 5 4 Model Misspecification 42.
3 5 Log Log Model 43,3 5 1 General Equation 43,3 5 2 Reasons of using log log model 43. 3 5 3 Hypothesis Testing and Diagnosis Checking 44. 3 6 Conclusion 44,CHAPTER 4 DATA ANALYSIS 45,4 0 Introduction 45. 4 1 Simple Linear Regression Model Result 45, 4 1 1 Results Interpretations and Hypothesis testing 46. 4 2 Multiple Linear Regression model 48,4 2 1 Results Interpretations 49. 4 2 1 1 Gold price and inflation 49,4 2 1 2 Gold price and silver price 51.
4 2 1 3 Gold price and USA dollar trade weighted index 51. 4 2 1 4 Gold price and Brent crude oil price 53,4 2 2 Is the model significant 54. 4 2 3 Diagnosis Checking 54,4 3 Log log Model 56, 4 3 1 Results Interpretations and Hypothesis testing 56. 4 3 2 Which models to choose 58,4 4 Conclusion 59,CHAPTER 5 CONCLUSION 60. 5 0 Introduction 60,5 1 Discussion of Major Findings 60. 5 1 1 Inflation and gold price 61,5 1 2 Silver price and gold price 61.
5 1 3 USA dollar trade weighted index and gold price 62. 5 1 4 Brent crude oil price and gold price 62,5 1 5 Fitness of CNLRM in the study 62. 5 2 Contributions of Study 63,5 3 Limitations of study 64. 5 4 Recommendations for Future Research 66,References 69. Appendices 74,LIST OF TABLES, Table 1 Determinants of gold price using simple linear regression model 46. Table 2 Determinants of gold price using multiple linear regression model 48. Table 3 Determinants of gold price using log log model 56. Table 4 Diagnostic checking 58,LIST OF FIGURES, Figure 1 Gold price from the year Q1 1971 to Q1 2011 3.
Figure 2 Proposed model 24,Figure 3 Flow of methodology analysis 31. LIST OF ABBREVIATIONS, ARCH Autoregressive conditional heteroscedasticity. BLUE Best Linear Unbiased Estimator,CLRM Classical Linear Regression Model. CNLRM Classical Normality Linear Regression Model,CRD Brent Crude Oil Price. ECM Error Correction Model,GFD Global Financial Data.
GOLD Gold Price,IFS International Financial Statistics. InCRD Logarithm of Gold price,INF World Consumer Price Index. InGOLD Logarithm of Gold price,InINF Logarithm of Gold price. InSIL Logarithm of Silver price,M1 Money Supply,OLS Ordinary Least Square. RESET Regression Specification Error Test,SIL Silver Price.
USD USA Dollar Trade Weighted Index,VECM Vector Error Correction Model. VIF Variance Inflation Factor,LIST OF APPENDICES,Appendix 4 1 Simple Linear Regression Model 74. Appendix 4 2 Multiple Linear Regression Model 76,Appendix 4 3 Diagnostic Checking 77. Appendix 4 4 Log model 80,Appendix 4 5 Diagnostic Checking 81. The gold related research had been highlighted in the recent years due to the sharp. increasing trend of gold price since 2005 Gold price stated an average price of USD 427. per ounce in 2005 had increased dramatically to USD 1384 per ounce in first quarter of. 2011 Besides the important characteristics of gold hedge against uncertainty of. economic condition had made gold served as an important investment tools in the market. The main objective of this paper was to examine the determinants of gold price by. investigating the four keys influencing variables affecting gold price such as inflation. silver price USA dollar trade weighted index and Brent crude oil price Quarterly data. which obtained from the period of 1971 to first quarter of 2011 were sourced from. International Financial Statistics IFS and Global Financial Data GFD Simple linear. regression model and multiple linear regression model were constructed to investigate the. relationship between independent variables and gold price by using Ordinary Least. Square OLS procedure The study findings showed there were positive relationship. between inflation silver price and Brent crude oil price with gold price On the other. hand the negative relationship could be observed between USA Dollar trade weighted. index and gold price A more comprehensive model could be provided in this study by. capturing various factors into consideration This framework contributed to a better. understanding of which factors could significantly affecting gold price In addition. financial planners were provided with better decision aid in the investment strategy. CHAPTER 1 INTRODUCTION 1 0Introduction This chapter focused on the research background of gold followed by problem statement research objectives which consist of general objectives and specific objectives research question hypothesis of study significance of study and chapter layout 1 1 Research background The continuous rising of gold price since the year of 2005 had pulled the

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