Forecasting the Outcome of the Swiss Gold Initiative - Urban Jermann
Sunday, November 16, 2014 at 05:27PM
Gold Prices

In this morning’s mail bag we received a very interesting article on the Swiss Gold Initiative which we think you will find both informative and enjoyable.

The author is Urban J. Jermann PhD,

Safra Professor of International Finance and Capital Markets

Professor of Finance

Finance Department

Wharton School of the University of Pennsylvania


On November 30th 2014, Swiss voters decide whether to require the central bank, the SNB, to hold 20% of its assets in gold. Before the vote on this initiative, financial markets' views about the likelihood of an acceptance are reflected in securities' prices. In particular, given the likely impact an acceptance would have on the SNB's exchange rate policy, options on exchange rates are informative about the likelihood of an acceptance of the gold initiative.

Based on my estimates, as of November 14, financial markets do not find it likely that the gold initiative will be accepted. The probability of acceptance is higher than 20%. Specifically, if markets believe that a yes vote implies a zero probability that the SNB can continue its CHF 1.20 cap for the euro, then the probability of an acceptance of the initiative is 20%. If the SNB is not necessarily expected to abandon its current policy upon an acceptance of the initiative, the probability of a yes vote is higher than 20%. For instance, to justify a 50% probability of a yes vote, one has to attach a 60% probability to the SNB maintaining the cap at CHF 1.20 despite a yes vote.

To read this paper in full please click here...


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