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When Safe-Haven Asset Is Less than a Safe-Haven Play

Author

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  • Leon Li
  • Carl R Chen

Abstract

We propose a four-state regime-switching model that pairs low-volatility and high-volatility (HV) states to test eight stock–safe-haven asset portfolios’ risk properties. We find the correlations between gold, U.S. T-bond, and the Swiss franc and stock markets are negative or zero in all states, including the HV–HV state, while the correlations between Bitcoin (BTC) and stock markets are positive in the HV–HV state, implying that gold, T-bond, and the Swiss franc are full safe-havens and BTC is a partial safe-haven asset. Moreover, our model is effective in portfolio construction, performing better than conventional time-varying generalized autoregressive conditional heteroskedasticity-based models.

Suggested Citation

  • Leon Li & Carl R Chen, 2024. "When Safe-Haven Asset Is Less than a Safe-Haven Play," Journal of Financial Econometrics, Oxford University Press, vol. 22(4), pages 808-838.
    • Handle: RePEc:oup:jfinec:v:22:y:2024:i:4:p:808-838.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbad009
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    More about this item

    Keywords

    safe-haven assets; portfolio; correlations; regime-switching model;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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