The Impact of Jumps and Leverage in Forecasting Co-Volatility

Manabu Asai and Michael McAleer

No 15-018/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: The paper investigates the impact of jumps in forecasting co-volatility, accommodating leverage effects. We modify the jump-robust two time scale covariance estimator of Boudt and Zhang (2013)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 three stocks traded on the New York Stock Exchange indicate that the co-jumps of two assets have a significant impact on future co-volatility, but that the impact is negligible for forecasting weekly and monthly horizons.

Keywords: Co-Volatility; Forecasting; Jump; Leverage Effects; Realized Covariance; Threshold (search for similar items in EconPapers)
JEL-codes: C32 C53 C58 G17 (search for similar items in EconPapers)
Date: 2015-02-09
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The impact of jumps and leverage in forecasting covolatility (2017)
Working Paper: The Impact of Jumps and Leverage in Forecasting Co-Volatility (2015)
Working Paper: The Impact of Jumps and Leverage in Forecasting Co-Volatility (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20150018

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