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Financial Markets and Portfolio Management

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10.11.2016

How safe are the safe haven assets?

verfasst von: Kateryna Anatoliyevna Kopyl, John Byong-Tek Lee

Erschienen in: Financial Markets and Portfolio Management | Ausgabe 4/2016

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Abstract

The aim of this paper is to examine which of the assets commonly believed to be safe havens do, in fact, protect investors during periods of severe financial instability. Using a broad dataset of 32 assets over the period of 1964–2014, we examine the relationship of these assets with the US equity market during financial crises to determine which of them are safe havens for US investors, hedges, or speculations. We find that the US Treasuries and Japanese yen are the strongest safe haven investments in months characterized by large declines in market value or excessive volatility. We also document that the recent global financial crisis had significantly negative ramifications on the safe haven properties of many of these assets. Our out-of-sample analyses show that while, in general, predictive market exposures are negatively correlated with asset returns in strong market downturns, those of even the strongest safe haven assets are often statistically insignificant.

Vorheriger Artikel Changing organizational form in the stock exchange industry and risk-taking

Nächster Artikel John F. Bovenzi: Inside the FDIC: Thirty Years of Bank Failures, Bailouts, and Regulatory Battles

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An earlier version of the study examined a wider range of assets, including international equity indices and other sovereign bonds and currencies. As one would expect, all the equity indices were positively correlated with US market returns and other bonds and currencies yielded results similar to those of their peers in the current version and thus were dropped to conserve space.

We choose three-month bond yields so as to obtain the longest sample from Datastream.

The chosen return frequency is somewhat arbitrary. The monthly return period is chosen, first, based on data availability and, second, because this frequency is likely to be of most interest to investors. We also conduct analyses on weekly returns as a robustness check.

Note that the choice of quantiles is somewhat arbitrary. Our selection was influenced by the work of Baur and McDermott (2010).

To account for potential heteroskedasticity in the data, we also specified a corresponding GARCH(1,1) equation (\(h_t =\pi +\alpha e_{t-1}^2 +\beta h_{t-1})\) and estimated this full model simultaneously using maximum likelihood. However, the results obtained from the GARCH tests did not differ significantly from the OLS estimates. Therefore, we report only the results of the OLS analysis for brevity.

The Swiss franc had periods of set minimum rates against other currencies—in 1978 against the German mark and from September 2011 against the euro. The results excluding these periods are similar. We thank the anonymous referee for pointing this out.

We also employ realized volatility computed from the daily S&P 500 returns within each month as another measure of uncertainty. The results (not reported) are qualitatively similar to those with the VIX presented in Table 3. We thank the anonymous referee for the suggestion.

Only monthly data are available for real estate and wine, and thus these are excluded from the weekly analyses in Table 4.

We repeat the tests with the VIX outlined in Table 3 at weekly frequency, too. The results are similar to those of Table 3 and are not reported for brevity.

The GFC results are slightly different from those in Table 6 as the crisis dummy was set with the observations leading up to the GFC only.

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Titel: How safe are the safe haven assets?
verfasst von: Kateryna Anatoliyevna Kopyl
John Byong-Tek Lee
Publikationsdatum: 10.11.2016
Verlag: Springer US
Erschienen in: Financial Markets and Portfolio Management / Ausgabe 4/2016
Print ISSN: 1934-4554
Elektronische ISSN: 2373-8529
DOI: https://doi.org/10.1007/s11408-016-0277-5

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