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The Impact of Jumps and Leverage in Forecasting the Co-Volatility of Oil and Gold Futures

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Asai, Manabu and Gupta, Rangan and McAleer, Michael (2019) The Impact of Jumps and Leverage in Forecasting the Co-Volatility of Oil and Gold Futures. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 12, 2019, ISSN: 2341-2356 ]

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Abstract

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.


Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Commodity Markets; Co-volatility; Forecasting; Jump; Leverage Effects; Realized Covariance; Threshold Estimation.
Subjects:Social sciences > Economics > Econometrics
JEL:C32, C33, C58, Q02
Series Name:Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volume:2019
Number:12
ID Code:54770
Deposited On:28 Mar 2019 12:09
Last Modified:28 Mar 2019 12:09

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