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    Identifying safe haven assets for equity investors through an analysis of the stability of shock transmission


    Flavin, Thomas and Morley, Ciara and Panopoulou, Ekaterini (2014) Identifying safe haven assets for equity investors through an analysis of the stability of shock transmission. Journal of International Financial Markets, Institutions and Money, 33. pp. 137-154. ISSN 1042-4431

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    Abstract

    Our analysis takes the perspective of an equity fund manager who seeks a potential safe haven asset to protect her portfolio during market downturns. We employ a regime-switching framework, within which we separate common and idiosyncratic shocks, to assess the suitability of gold, 10-year and 1-year U.S. Treasury bonds. We find evidence in favor of choosing either gold or the longer-dated bond as our safe haven asset. Both deliver risk reduction benefits as equity markets plunge. In contrast, the 1-year bond is not suitable as its vulnerability to contagious idiosyncratic shocks more than offsets its ability to hedge against common risk factors.

    Item Type: Article
    Keywords: Safe haven assets; Financial market crises; Shock transmission; Regime switching;
    Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
    Item ID: 5324
    Identification Number: https://doi.org/10.1016/j.intfin.2014.08.001
    Depositing User: Thomas Flavin
    Date Deposited: 02 Sep 2014 16:27
    Journal or Publication Title: Journal of International Financial Markets, Institutions and Money
    Publisher: Elsevier
    Refereed: Yes
    URI:

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