The effect of gold market speculation on REIT returns in South Africa : a behavioral perspective

Abstract

This study provides novel insight to the evolution of herd behavior during crisis periods by relating the time-variation in investor herding to speculation in gold, an asset traditionally considered a safe haven during periods of market crisis. We find that higher level of speculation in gold significantly contributes to herding in the emerging South African real estate investment trust (REIT) market, particularly during the mid-2008 to 2011 period, matching the duration and aftermath of the global financial crisis. The evidence of herding in this market is in contrast to the static and two-regime model specifications that fail to detect herding, underscoring the significance of econometric specifications that directly track the time-variation in herd behavior. Our findings suggest that speculative activities in the gold market contain valuable information regarding market fundamentals that drive investor behavior in emerging markets and that regulators should monitor indicators of speculative activities in gold in order to implement circuit breakers in their markets that may help mitigate the negative effects of herd behavior.