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

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2019
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Facultad de Ciencias Económicas y Empresariales. Instituto Complutense de Análisis Económico (ICAE)
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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.
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