The Impact of Jumps and Leverage in Forecasting Co-Volatility

Manabu Asai and Michael McAleer

No 2015-02, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

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 Estimation. (search for similar items in EconPapers)
JEL-codes: C32 C53 C58 G17 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2015-02
New Economics Papers: this item is included in nep-ets, nep-for, nep-mst, nep-ore and nep-rmg
Note: The authors are most grateful to Yoshi Baba and Karen Lewis for very helpful comments and suggestions. The first author acknowledges the financial support of the Japan Ministry of Education, Culture, Sports, Science and Technology, Japan Society for the Promotion of Science, and Australian Academy of Science. The second author is most grateful for the financial support of the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science. Address for correspondence: Faculty of Economics, Soka University, 1-236 Tangi-machi, Hachioji, Tokyo 192-8577, Japan. Email address: m-asai@soka.ac.jp.
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https://eprints.ucm.es/id/eprint/28343/1/1502.pdf (application/pdf)

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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