The impact of jumps and leverage in forecasting the co-volatility of oil and gold futures

Manabu Asai; Rangan Gupta; Michael McAleer

doi:10.3390/en12173379

The impact of jumps and leverage in forecasting the co-volatility of oil and gold futures

Manabu Asai
, Rangan Gupta
, Michael McAleer^*

^*Corresponding author for this work

Econometrics

Soka University
University of Pretoria

Research output: Contribution to journal › Article › Academic › peer-review

32 Citations (Scopus)

33 Downloads (Pure)

Abstract

This paper investigates the impact of jumps in forecasting co-volatility in the presence of leverage effects for daily crude oil and gold futures. We use a modified version of 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 show that more than 80% of the co-volatility of the two futures contains jump variations and that they have significant impacts on future co-volatility but that the impact is negligible in forecasting weekly and monthly horizons.

Original language	English
Article number	3379
Journal	Energies
Volume	12
Issue number	17
DOIs	https://doi.org/10.3390/en12173379
Publication status	Published - 2 Sept 2019

Bibliographical note

Funding: 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 (JSPS KAKENHI Grant Number 19K01594),
and Australian Academy of Science. The third author is most grateful for the financial support of the Australian
Research Council, Ministry of Science and Technology (MOST), Taiwan, and the Japan Society for the Promotion
of Science.

Publisher Copyright:
© 2019 by the authors.

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 7 Affordable and Clean Energy

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Cite this

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title = "The impact of jumps and leverage in forecasting the co-volatility of oil and gold futures",

abstract = "This paper investigates the impact of jumps in forecasting co-volatility in the presence of leverage effects for daily crude oil and gold futures. We use a modified version of 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 show that more than 80\% of the co-volatility of the two futures contains jump variations and that they have significant impacts on future co-volatility but that the impact is negligible in forecasting weekly and monthly horizons.",

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The impact of jumps and leverage in forecasting the co-volatility of oil and gold futures

Abstract

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