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

Leon Li and Carl R Chen

Journal of Financial Econometrics, 2024, vol. 22, issue 4, 808-838

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.

Keywords: safe-haven assets; portfolio; correlations; regime-switching model (search for similar items in EconPapers)
JEL-codes: C58 G11 (search for similar items in EconPapers)
Date: 2024
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