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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, M.
  • Gupta, R.
  • McAleer, M.J.

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

Suggested Citation

  • Asai, M. & Gupta, R. & McAleer, M.J., 2019. "The Impact of Jumps and Leverage in Forecasting the Co-Volatility of Oil and Gold Futures," Econometric Institute Research Papers EI2019-16, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    • Handle: RePEc:ems:eureir:115614
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    References listed on IDEAS

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    More about this item

    Keywords

    Commodity Markets; Co-volatility; Forecasting; Jump; Leverage Effects; Realized; Covariance; Threshold Estimation.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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