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Investor Sentiment and Crash Risk in Safe Havens

Adnen Ben Nasr (), Matteo Bonato, Riza Demirer () and Rangan Gupta ()

No 201804, Working Papers from University of Pretoria, Department of Economics

Abstract: This study examines the relationship between investor sentiment and intraday return dynamics for safe haven assets, with particular focus on crash risk in these assets. Examining intraday returns for a wide range of safe havens proposed in the literature, we find that shocks to investor sentiment have a significant effect on most safe havens, while the sentiment is heterogeneous both in terms of its size and direction. While the strongest effects of sentiment shocks are observed in the case of Gold, Swiss Francs and Japanese Yen, interestingly, we find that oil stands out from the rest of the pack, responding negatively to sentiment shocks, suggesting that positive shocks to sentiment (i.e. high fear) increase crash risk for this asset. Our findings also point to intra-safe haven spillover effects, with oil exhibiting a markedly different pattern. Investment and hedging implications are discussed next.

Keywords: Investor sentiment; Safe haven assets; Intraday returns; Crash risk (search for similar items in EconPapers)
JEL-codes: C32 Q02 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-rmg
Date: 2018-01
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