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On financial risk and the safe haven characteristics of Swiss franc exchange rates

Christian Grisse () and Thomas Nitschka

No 2013-04, Working Papers from Swiss National Bank

Abstract: We analyse bilateral Swiss franc exchange rate returns in an asset pricing framework to evaluate the Swiss franc's safe haven characteristics. A "safe haven" currency is a currency that offers hedging value against global risk, both on average and in particular in crisis episodes. To explore these issues we estimate the relationship between exchange rate returns and risk factors in augmented UIP regressions, using recently developed econometric methods to account for the possibility that the regression coefficients may be changing over time. Our results highlight that in response to increases in global risk the Swiss franc appreciates against the euro as well as against typical carry trade investment currencies such as the Australian dollar, but depreciates against the US dollar, the Yen and the British pound. Thus, the Swiss franc exhibits safe-haven characteristics against many, but not all other currencies. We find statistically significant time variation in the relationship between Swiss franc returns and risk factors, with this link becoming stronger in times of stress.

Keywords: Exchange rate; monetary policy; risk factors; safe haven; Swiss franc; uncovered interest rate parity (search for similar items in EconPapers)
JEL-codes: E32 F44 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-mac, nep-mon and nep-rmg
Date: 2013
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Journal Article: On financial risk and the safe haven characteristics of Swiss franc exchange rates (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2013-04

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