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Forecasting volatility and co-volatility of crude oil and gold futures: Effects of leverage, jumps, spillovers, and geopolitical risks

Manabu Asai, Rangan Gupta () and Michael McAleer

International Journal of Forecasting, 2020, vol. 36, issue 3, 933-948

Abstract: To forecast the covariance matrix for the returns of crude oil and gold futures, this paper examines the effects of leverage, jumps, spillovers, and geopolitical risks by using their respective realized covariance matrices. To guarantee the positive definiteness of the forecasts, we consider the full BEKK structure on the conditional Wishart model. By the specification, we can flexibly divide the direct and spillover effects of volatility feedback, negative returns, and jumps. The empirical analysis indicates the benefits of accommodating the spillover effects of negative returns, and the geopolitical risks indicator for modeling and forecasting the covariance matrix.

Keywords: Commodity markets; Co-volatility; Forecasting; Geopolitical risks; Jumps; Leverage effects; Spillover effects; Realized covariance (search for similar items in EconPapers)
Date: 2020
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Working Paper: Forecasting Volatility and Co-volatility of Crude Oil and Gold Futures: Effects of Leverage, Jumps, Spillovers, and Geopolitical Risks (2019)
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DOI: 10.1016/j.ijforecast.2019.10.003

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Handle: RePEc:eee:intfor:v:36:y:2020:i:3:p:933-948