The study of the price of gold futures based on heterogeneous investors' overconfidence
Abstract
Purpose
The purpose of this paper is to research and analyze the price of gold futures based on heterogeneous investors' overconfidence.
Design/methodology/approach
This paper divides the traders of gold futures market into two kinds: the speculators and arbitrageurs, and then constructs a market equilibrium model of futures pricing to analyze the behaviors of the two kinds of traders with overconfidence. After getting the decision-making function, the market equilibrium futures price is attained on the condition of market clearing. Then, this paper analyzes how the overconfidence impacts on futures price, volatility of the price of gold futures and the effects on individual utility.
Findings
Under different market conditions, the overconfidence psychological impacts of heterogeneous investor on the price and volatility of futures are different, sometimes completely opposite.
Originality/value
In the past literature, the relationships between overconfidence and the price or volatility are positive; however, the study shows that sometimes it is positive, and sometimes it is negative.
Keywords
Acknowledgements
This research project is supported by the National Natural Science Fund (70871042). The paper was discussed at China International Conference in Finance and China Economics Annual Meeting. The authors are grateful to the anonymous referees. However, the responsibilities of this paper shall be fully borne by the authors.
Citation
Jiang, W., Luan, P. and Yang, C. (2014), "The study of the price of gold futures based on heterogeneous investors' overconfidence", China Finance Review International, Vol. 4 No. 1, pp. 24-41. https://doi.org/10.1108/CFRI-12-2012-0115
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited