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The Impact of Jumps and Leverage in Forecasting Co-Volatility

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Asai, Manabu and McAleer, Michael (2015) The Impact of Jumps and Leverage in Forecasting Co-Volatility. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 02, 2015, ISSN: 2341-2356 ] (Unpublished)

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Official URL: http://eprints.ucm.es/28343/




Abstract

The paper investigates the impact of jumps in forecasting co-volatility, accommodating leverage effects. We modify the jump-robust two time scale covariance estimator of Boudt and Zhang (2013) 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 three stocks traded on the New York Stock Exchange indicate that the co-jumps of two assets have a significant impact on future co-volatility, but that the impact is negligible for forecasting weekly and monthly horizons.


Item Type:Working Paper or Technical Report
Additional Information:

The authors are most grateful to Yoshi Baba and Karen Lewis for very helpful comments and suggestions. The first author acknowledges the financial support of the Japan Ministry of Education, Culture, Sports, Science and Technology, Japan Society for the Promotion of Science, and Australian Academy of Science. The second author is most grateful for the financial support of the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science.
Address for correspondence: Faculty of Economics, Soka University, 1-236 Tangi-machi, Hachioji, Tokyo 192-8577, Japan. Email address: m-asai@soka.ac.jp.

Uncontrolled Keywords:Co-Volatility; Forecasting; Jump; Leverage Effects; Realized Covariance; Threshold Estimation.
Subjects:Social sciences > Economics > Econometrics
JEL:C32, C53, C58, G17
Series Name:Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2015
Number:02
ID Code:28343
Deposited On:12 Feb 2015 16:02
Last Modified:12 Feb 2015 16:02

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