Effects of idiosyncratic jumps and co-jumps on oil, gold, and copper markets

Artur Semeyutin, Giray Gözgör, Chi Keung Lau and Bing Xu

Energy Economics, 2021, vol. 104, issue C

Abstract: Using one-minute oil, gold and copper futures price from September 27, 2009, to July 1, 2020, this paper examines the effects of systematic and idiosyncratic (market-specific risk) jumps on intraday correlations, portfolio allocation decisions, and diversification benefits. We identify that these commodities contain high proportions of market-specific price discontinuities, which do not translate into systematic jumps. Co-jumps in the same direction lead to higher correlations and imply reduction in diversification benefits, while co-jumps in the opposite direction reduce correlations and positively affect diversification, similar to the idiosyncratic jumps. The results also demonstrate that the risk-averse investor’s gold portfolio allocations are not affected by co-jumps and are free from the non-diversifiable risks in oil and copper markets. However, idiosyncratic jumps in oil and copper markets increase allocations to gold. In contrast, allocations to copper and oil are significantly affected by the systematic risks outlined in copper–gold and oil–gold pairs, pushing risk-averse investors to oil from copper–gold and copper from oil–gold systematic risks. Finally, diversification benefits from price discontinuities are overall positive and driven by the idiosyncratic jumps in oil and copper markets when the minimum variance portfolio allocations are used.

Keywords: Oil market; Gold market; Copper market; Portfolio allocations; Jumps and Co-jumps; COVID-19 pandemic (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:104:y:2021:i:c:s014098832100517x

DOI: 10.1016/j.eneco.2021.105660

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