Forecasting volatility and co-volatility of crude oil and gold futures: Effects of leverage,jumps, spillovers,and geopolitical risks |
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| Institution: | 1. School of Economics and Management, Nanjing University of Science and Technology, Nanjing, China;2. School of Finance, Nanjing Audit University, Nanjing, China;3. Jiangsu key laboratory of financial engineering, Nanjing Audit University, Nanjing, China;4. School of Economics and Management, Southwest Jiao Tong University, Chengdu, China;5. Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai, China;1. Department of Business Administration, University of Patras, University Campus, Rio, P.O. Box 1391, Patras 26500, Greece;2. Department of Economics, University of Pretoria, Pretoria 0002, South Africa;3. College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA;4. School of Business and Economics, Loughborough University, Leicestershire LE11 3TU, UK |
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| 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. |
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| Keywords: | Commodity markets Co-volatility Forecasting Geopolitical risks Jumps Leverage effects Spillover effects Realized covariance |
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