Journal
INTERNATIONAL JOURNAL OF FORECASTING
Volume 36, Issue 3, Pages 933-948Publisher
ELSEVIER
DOI: 10.1016/j.ijforecast.2019.10.003
Keywords
Commodity markets; Co-volatility; Forecasting; Geopolitical risks; Jumps; Leverage effects; Spillover effects; Realized covariance
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Funding
- Japan Ministry of Education, Culture, Sports, Science, and Technology
- Japan Society for the Promotion of Science (JSPS KAKENHI) [19K01594]
- Australian Academy of Science
- Grants-in-Aid for Scientific Research [19K01594] Funding Source: KAKEN
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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. (C) 2020 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.
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