Safe haven currencies: A dependence switching copula approach

Leo Michelis (), Cathy Ning and Jeremey Ponrajah ()
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Leo Michelis: Department of Economics, Toronto Metropolitan University, Toronto, Canada

No 91, Working Papers from Toronto Metropolitan University, Department of Economics

Abstract: This paper presents a unique approach to investigating the safe haven properties of five major currencies: the US dollar, the Japanese yen, the Swiss franc, the euro, and the British pound. Unlike other studies, we employ a flexible dependence-switching copula model to examine the joint tail dependence between these currencies and global market risk. This innovative method allows us to measure the strength of safe haven currencies directly. Using daily data from January 1999 to June 2024, our empirical findings reveal the US dollar’s continued status as a safe haven currency during periods of heightened global risk aversion. The yen also maintains its safe haven attributes, even in the presence of the US dollar’s safe haven behaviour. The Swiss franc exhibits safe haven characteristics, albeit less pronounced than the US dollar. In contrast, the euro and the pound demonstrate the weakest safe haven characteristics among the five currencies.

Pages: 36 pages
Date: 2024-07
New Economics Papers: this item is included in nep-ifn and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:rye:wpaper:wp091

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