Real Optionality in Gold Operations. An investigation of Gold Exposure, Asymmetries and Excess Returns

Abstract

This thesis examines the gold beta exposure and the usage of real options for 52 listed gold companies in North America between 1997 and 2014. Building on prior research we develop a model that includes a larger set of control variables, this model show that earlier research has su ered from underspeci cation leading to biases. Standard errors are drastically reduced by more e cient use of the return data. The results show that the gold beta varies largely over time but that an invest- ment in gold companies has on average a gold beta above one. Additionally, we nd evidence of asymmetries in the returns due to the usage of real options. The return asymmetries are also shown to vary across companies and over time. Prior work has suggested that it would be better to invest in gold mining companies compared to a direct investment in gold due to the real optionality. To test this statement a performance evaluation is conducted to conclude whether greater asymmetry is associated with higher risk-adjusted returns. The results indicate that stocks with greater asymmetry have provided investors with higher risk-adjusted returns.