How has the relationship between safe haven assets and the US stock market changed after the global financial crisis?

Yuji Sakurai

Journal of International Financial Markets, Institutions and Money, 2021, vol. 75, issue C

Abstract: In this paper, I investigate how the relationship between safe haven assets and the US stock market has changed since the global financial crisis. To do so, I propose a new concept of bear-market correlation which allows us to see the effectiveness of the safe haven asset as a hedge and portfolio diversification tool. I compute the bear-market correlation of five safe haven assets during two sample periods, pre-financial crisis (1995–2009) and post-financial crisis (2010–2018). My findings are as follows: First, I find that the empirical bear-market correlations are not explained by multivariate normal and t-distributions. Second, I document that the bear-market correlations of both the Japanese yen and gold show notable changes after the crisis. Third, I estimate a multivariate normal mixture, a multivariate t-distribution mixture, and a generalized dynamic conditional correlation model. I document that these mixture models outperform the dynamic conditional correlation model in most cases. Finally, I discuss the economic impact of failing to capture the bear-market correlation for portfolio optimization.

Keywords: Gold; VIX; Optimal hedge ratio; Dynamic conditional correlation model (search for similar items in EconPapers)
JEL-codes: G01 G11 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042443121000706
Full text for ScienceDirect subscribers only

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:eee:intfin:v:75:y:2021:i:c:s1042443121000706

DOI: 10.1016/j.intfin.2021.101351

Access Statistics for this article

Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely

More articles in Journal of International Financial Markets, Institutions and Money from Elsevier
Bibliographic data for series maintained by Catherine Liu ().