Safe‐haven currency: An empirical identification

Abstract

This paper attempts to empirically identify strong safe havens among six currencies: the Swiss franc, Japanese yen, British pound, euro, Canadian dollar and Norwegian krone. Using Markov regime‐switching vector autoregressive models, we test whether the currencies are negatively related to risky assets and whether the negative relation is stronger in times of crisis than in times of growth. We find that (1) the Swiss franc and Japanese yen qualify as strong safe havens, and (2) the other currencies qualify as “equity‐like” or risky currencies.

Optimal Portfolio Allocation between Global Stock Indexes and Safe Haven Assets: Gold versus the Swiss Franc (1999–2021)

“…Accordingly, there is no benchmark comparison for our results assigning a very large weight to the Swiss currency in all global stocks portfolios. In a more general perspective, however, this empirical evidence is consistent with Lee (2017), where Markov-Switching VAR models are applied to six currencies in order to capture their time-varying relationships with one global stock market index (MSCI All Country World Index). As documented in Lee (2017), only the Swiss Franc and the Japanese Yen qualify as safe haven currencies, displaying insignificant comovements with this global stock market index under both "normal" and under "crises" periods.…”

“…In a more general perspective, however, this empirical evidence is consistent with Lee (2017), where Markov-Switching VAR models are applied to six currencies in order to capture their time-varying relationships with one global stock market index (MSCI All Country World Index). As documented in Lee (2017), only the Swiss Franc and the Japanese Yen qualify as safe haven currencies, displaying insignificant comovements with this global stock market index under both "normal" and under "crises" periods. Since this global index measures the stock performance of a large number of countries (23 developed and 23 emerging markets), Lee (2017) results are closely in line with the large weight assigned to the Swiss Franc in global stock portfolios examined in the present paper.…”

“…Danthine and Danthine (2017) maintain that long-run, Swiss-based, international investors benefit from the secular appreciation tendency of the Swiss currency, and this more than compensates for the traditional under-performance of Swiss-denominated asset returns. Lee (2017) applies Markov regime-switching vector autoregressive models to test whether six important currencies (Swiss Franc, Japanese Yen, British Pound, Euro, Canadian Dollar, and Norwegian Krone) are negatively related to risky assets (and whether this negative relation is stronger during "crisis" periods) and concludes that only the Swiss Franc and the Japanese Yen qualify as strong "safe havens". Chan et al (2018) rely on a bivariate regime-switching model and find that the Swiss Franc, the U$ Dollar, and the Japanese Yen have positive co-skewness (i.e., they appreciate when stock markets become more volatile), thus providing protection against stock markets turbulences.…”

The Importance and Use of Blockchain Technology in International Payment Methods

“…This capital flight in times of crisis towards a value considered "safe haven" is characteristic of safe assets. Kaul and Sapp defined a "safe haven" as a currency that brokers invest in during times of uncertainty (Lee, 2017). Habib and Stracca explained that the ideal safe haven should be isolated from market turbulence in times of crisis (Habib, Mileva and Stracca, 2017).…”

Segmentation of time series in up- and down-trends using the epsilon-tau procedure with application to USD/JPY foreign exchange market data

“…The asymmetry between up- and down-trends is more explicit for the amplitudes: large down-trends (movements of depreciation of U.S. dollar against the Japanese yen), have higher probability than large trends in the opposite direction and can reach more extreme values of amplitude, e.g., ∼6 JPY per USD in the τ = 1800 (30min) case ( Fig 10c ). Such behavior is explained by the fact that the Japanese yen is seen as a safe-haven currency, a safe asset which protects investors during periods of uncertainty [ 32 ].…”