The Impact of Jumps and Leverage in Forecasting the Co-Volatility of Oil and Gold Futures
The paper investigates the impact of jumps in forecasting co-volatility in the presence of leverage effects. We modify the jump-robust covariance estimator of Koike (2016), such that the estimated matrix is positive definite. Using this approach, we can disentangle the estimates of the integrated co-volatility matrix and jump variations from the quadratic covariation matrix. Empirical results for daily crude oil and gold futures show that the co-jumps of the two futures have significant impacts on future co-volatility, but that the impact is negligible in forecasting weekly and monthly horizons.
|Keywords||Commodity Markets, Co-volatility, Forecasting, Jump, Leverage Effects, Realized Covariance, Threshold Estimation.|
|JEL||Time-Series Models; Dynamic Quantile Regressions (jel C32), Models with Panel Data (jel C33), Financial Econometrics (jel C58), Commodity Markets (jel Q02)|
Asai, M, Gupta, R, & McAleer, M.J. (2019). The Impact of Jumps and Leverage in Forecasting the Co-Volatility of Oil and Gold Futures. Retrieved from http://hdl.handle.net/1765/115754