Price Discovery Role and Causal Relationship Between Malaysian Gold Futures Prices and Spot Gold Prices

This paper examines the market efficiency of the newly introduced Malaysian gold futures market through its price discovery role and the causal relationship with its spot gold market. Restricted Least Square and Toda-Yamamoto Granger Causality methods are used to achieve the objectives of this study. The study uses daily closing gold futures prices and spot gold prices covering the duration from March 2014 to January 2015. Results of the Restricted Least Square method shows that the Malaysian gold futures market is inefficient and thus failed to play its price discovery function. Further econometric analysis also reveals that the gold futures market is used for speculative purpose and both markets are not integrated. Empirical analysis using Toda-Yamamoto Granger Causality method verifies that spot gold prices Granger cause the Malaysian gold futures prices.