Abstract
This paper focuses on three “safe haven” assets (gold, oil, and the Swiss Franc) and examines the impact of recent financial crises and some macroeconomic variables on their return co-movements during the last two decades. All financial crises produced significant increases in conditional correlations between these asset returns, thus revealing consistent portfolio shifts from more traditional towards safer financial instruments during turbulent periods. The world equity risk premium stands out as the most relevant macroeconomic variable affecting return co-movements, while economic policy uncertainty indicators also exerted significant effects. Overall, this evidence points out that gold, oil, and the Swiss currency played an important role in global investors’ portfolio allocation choices, and that these assets preserved their essential “safe haven” properties during the period examined.
Highlights
Introduction and MotivationA financial asset is referred to as a “safe haven” asset if it provides hedging benefits during periods of market turbulence
This paper focuses on three “safe haven” assets and examines the impact of recent financial crises and some macroeconomic variables on their return co-movements during the last two decades
This paper focuses on three “safe haven” assets which have received wide attention in the recent applied literature, and explores some statistical properties of these assets with a particular focus on their time-varying correlation patterns
Summary
A financial asset is referred to as a “safe haven” asset if it provides hedging benefits during periods of market turbulence. : (1) The effects of financial crises on time-varying correlations between these assets have rarely been explored, notwithstanding the occurrence of many crises episodes in the latest years; (2) the effects of macroeconomic and financial variables potentially affecting the degree of agents risk-aversion (and dynamic correlation patterns) have likewise been seldom addressed The former issue is almost completely neglected in recent contributions (e.g., Ding and Vo 2012; Ciner et al 2013; Creti et al 2013; Jain and Biswal 2016; Poshakwale and Mandal 2016; Kang et al 2016, 2017; Nguyen and Liu 2017). Poshakwale and Mandal (2016) consider three “safe haven” assets (gold, oil, 10-year US government bonds) and document a significant impact of non-macroeconomic variables on their return co-movements.
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