Infectious disease (COVID-19)-related uncertainty and the safe-haven features of bonds markets

Shoaib Ali, Imran Yousaf and Zaghum Umar

Review of Behavioral Finance, 2022, vol. 15, issue 4, 477-487

Abstract: Purpose - This study aims to examine the hedge, diversifier and safe-haven properties of bonds against infectious disease-related equity market volatility (IDEMV), like COVID-19. Design/methodology/approach - The authors apply wavelet coherence methodology on the daily data of IDEMV and bond market (US, UK, Japan, Switzerland, Canada, Australia, Sweden, China and Europe) indices from 1 January 2000 to 14 February 2021. Findings - The results show no significant co-movement between these bond indices and IDEMV, thus confirming that they serve as a hedge against IDEMV. However, during the turbulent period like COVID-19, the authors find that the US, UK, Japan, Switzerland, Canada, Australia, Sweden, China and European bond markets act as safe-haven against IDEMV, whereas the UK, US, Japan and Canadian bond markets demonstrate an in-phase and positive co-movement with IDEMV during COVID-19, suggesting their role as a diversifier. Research limitations/implications - The study findings are important for investors and portfolio managers regarding risk management, portfolio diversification and investment strategies. Originality/value - The authors contribute to the fast growing body of work on the financial impacts of COVID-19 as well as to ongoing consideration of whether a bond is a safe-haven investment.

Keywords: COVID-19; Financial market uncertainty; Treasury securities; Corporate bonds; Safe havens; C22; C32; E43; D80; G12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:rbfpps:rbf-04-2021-0069

DOI: 10.1108/RBF-04-2021-0069

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