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

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

Blog Article

This paper investigates the impact of Vacuum Sealing 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 Power Resistance 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.