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Is the renminbi a safe-haven currency? Evidence from conditional coskewness and cokurtosis

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  • Cheng, Xin
  • Chen, Hongyi
  • Zhou, Yinggang

Abstract

We examine whether the renminbi (RMB) is a safe-haven currency in terms of its effectiveness in hedging financial stress for global equity investors. The coskewness of the RMB (the covariance between the RMB premium and equity volatility) is mostly negative, implying that the RMB is not a good hedge in times of market volatility. Moreover, the positive cokurtosis of the RMB (the covariance between the RMB premium and equity skewness) implies that the RMB is unable to hedge against stock market crashes. Neither the coskewness nor the cokurtosis of the RMB is priced, suggesting that equity investors with skewness and kurtosis preferences would not use the RMB to hedge against financial stress. Therefore, the RMB is not yet a safe-haven currency.

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  • Cheng, Xin & Chen, Hongyi & Zhou, Yinggang, 2021. "Is the renminbi a safe-haven currency? Evidence from conditional coskewness and cokurtosis," Journal of International Money and Finance, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:jimfin:v:113:y:2021:i:c:s0261560621000085
    DOI: 10.1016/j.jimonfin.2021.102359
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    More about this item

    Keywords

    Currency hedging; Conditional coskewness; Conditional cokurtosis; Idiosyncratic skewness; International asset pricing;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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