What Makes a Safe Haven? Equity and Currency Returns for Six OECD Countries during the Financial Crisis
Hong-Ghi Min,
Judith McDonald (djm0@lehigh.edu) and
Sang-Ook Shin (sshin@mays.tamu.edu)
Additional contact information
Judith McDonald: Department of Economics, Lehigh University
Sang-Ook Shin: Department of Finance, Texas A&M University
Annals of Economics and Finance, 2016, vol. 17, issue 2, 365-402
Abstract:
We estimate dynamic conditional correlations (DCCs) between equity and currency returns during the financial crisis using Engle's (2002) model. DCCs and their volatilities increased for all countries, increasing investors' risk aversion and leading to the "flight-to-quality". The US, Japan, and Switzerland have negative DCCs, making them "safe havens" that experienced capital in-flows, whereas the UK, Australia, and Canada have positive DCCs. Stock and foreign exchange volatility indexes increase DCCs for countries without safe assets; however, they decrease DCCs for countries with safe assets. Higher country-specific risk, as measured by its TED spread, and CDS spread, means higher DCCs.
Keywords: GARCH; Dynamic conditional correlations; Safe haven; Flight to quality; Wealth effect; Substitution effect; Stock market volatility index; Foreign-exchange volatility index; Interest-rate differentials; TED spread; Credit-default swap spread (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (10)
Downloads: (external link)
http://down.aefweb.net/AefArticles/aef170206Min.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2016:v:17:i:2:min
Access Statistics for this article
Annals of Economics and Finance is currently edited by Heng-fu Zou
More articles in Annals of Economics and Finance from Society for AEF Contact information at EDIRC.
Bibliographic data for series maintained by Qiang Gao (mutecamel@gmail.com).