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Do Jumps and Co-jumps Improve Volatility Forecasting of Oil and Currency Markets?

Author

Listed:
  • Fredj Jawadi
  • Waël Louhichi
  • Hachmi Ben Ameur
  • Zied Ftiti

Abstract

This paper aims at modeling and forecasting volatility in both oil and USD exchange rate markets using high frequency data. We test whether extreme co-move-ments (co-jumps) between these markets, as well as intraday unexpected news, help to improve volatility forecasting or not. Accordingly, we propose different extensions of Corsi (2009)’s model by including co-jumps and news. Our analysis provides two interesting findings. First, we find that both markets exhibit significant co-jumps driven by unexpected macroeconomic news. Second, we show that our model outperforms Corsi (2009)’s model and provides more accurate forecasts. In particular, while co-jumps constitute a key variable in forecasting oil price volatility, the unexpected news is relevant to forecasts of USD exchange rate volatility.

Suggested Citation

  • Fredj Jawadi & Waël Louhichi & Hachmi Ben Ameur & Zied Ftiti, 2019. "Do Jumps and Co-jumps Improve Volatility Forecasting of Oil and Currency Markets?," The Energy Journal, , vol. 40(2_suppl), pages 131-156, December.
    • Handle: RePEc:sae:enejou:v:40:y:2019:i:2_suppl:p:131-156
    DOI: 10.5547/01956574.40.SI2.fjaw
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    References listed on IDEAS

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    1. Barnett, William A., 2012. "Getting it Wrong: How Faulty Monetary Statistics Undermine the Fed, the Financial System, and the Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262516888, April.
    2. Reboredo, Juan Carlos & Rivera-Castro, Miguel A. & Zebende, Gilney F., 2014. "Oil and US dollar exchange rate dependence: A detrended cross-correlation approach," Energy Economics, Elsevier, vol. 42(C), pages 132-139.
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