TY - JOUR
T1 - Effects of idiosyncratic jumps and co-jumps on oil, gold, and copper markets
AU - Semeyutin, Artur
AU - Gozgor, Giray
AU - Lau, Chi Keung Marco
AU - Xu, Bing
N1 - Publisher Copyright:
© 2021
PY - 2021/12/1
Y1 - 2021/12/1
N2 - Using one-minute oil, gold and copper futures price from September 27, 2009, to July 1, 2020, this paper examines the effects of systematic and idiosyncratic (market-specific risk) jumps on intraday correlations, portfolio allocation decisions, and diversification benefits. We identify that these commodities contain high proportions of market-specific price discontinuities, which do not translate into systematic jumps. Co-jumps in the same direction lead to higher correlations and imply reduction in diversification benefits, while co-jumps in the opposite direction reduce correlations and positively affect diversification, similar to the idiosyncratic jumps. The results also demonstrate that the risk-averse investor's gold portfolio allocations are not affected by co-jumps and are free from the non-diversifiable risks in oil and copper markets. However, idiosyncratic jumps in oil and copper markets increase allocations to gold. In contrast, allocations to copper and oil are significantly affected by the systematic risks outlined in copper–gold and oil–gold pairs, pushing risk-averse investors to oil from copper–gold and copper from oil–gold systematic risks. Finally, diversification benefits from price discontinuities are overall positive and driven by the idiosyncratic jumps in oil and copper markets when the minimum variance portfolio allocations are used.
AB - Using one-minute oil, gold and copper futures price from September 27, 2009, to July 1, 2020, this paper examines the effects of systematic and idiosyncratic (market-specific risk) jumps on intraday correlations, portfolio allocation decisions, and diversification benefits. We identify that these commodities contain high proportions of market-specific price discontinuities, which do not translate into systematic jumps. Co-jumps in the same direction lead to higher correlations and imply reduction in diversification benefits, while co-jumps in the opposite direction reduce correlations and positively affect diversification, similar to the idiosyncratic jumps. The results also demonstrate that the risk-averse investor's gold portfolio allocations are not affected by co-jumps and are free from the non-diversifiable risks in oil and copper markets. However, idiosyncratic jumps in oil and copper markets increase allocations to gold. In contrast, allocations to copper and oil are significantly affected by the systematic risks outlined in copper–gold and oil–gold pairs, pushing risk-averse investors to oil from copper–gold and copper from oil–gold systematic risks. Finally, diversification benefits from price discontinuities are overall positive and driven by the idiosyncratic jumps in oil and copper markets when the minimum variance portfolio allocations are used.
UR - http://www.scopus.com/inward/record.url?scp=85119451288&partnerID=8YFLogxK
U2 - 10.1016/j.eneco.2021.105660
DO - 10.1016/j.eneco.2021.105660
M3 - Article
AN - SCOPUS:85119451288
SN - 0140-9883
VL - 104
JO - Energy Economics
JF - Energy Economics
M1 - 105660
ER -