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The role of catastrophe bonds in an international multi-asset portfolio: Diversifier, hedge, or safe haven?

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  • Drobetz, Wolfgang
  • Schröder, Henning
  • Tegtmeier, Lars

Abstract

We examine whether catastrophe bonds can serve as a hedge or a safe haven for global stock, bond, real estate, commodity, private equity, and infrastructure markets. Our findings indicate that catastrophe bonds are a poor hedge, but they act as an effective diversifier against other asset classes. Furthermore, catastrophe bonds serve as a strong safe haven against extreme price drops of the stock market only during the post-crisis period.

Suggested Citation

  • Drobetz, Wolfgang & Schröder, Henning & Tegtmeier, Lars, 2020. "The role of catastrophe bonds in an international multi-asset portfolio: Diversifier, hedge, or safe haven?," Finance Research Letters, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612319302971
    DOI: 10.1016/j.frl.2019.05.016
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    References listed on IDEAS

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    Cited by:

    1. Peter Carayannopoulos & Olga Kanj & M. Fabricio Perez, 2022. "Pricing dynamics in the market for catastrophe bonds," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(1), pages 172-202, January.
    2. Lars Tegtmeier, 2021. "Testing the Efficiency of Globally Listed Private Equity Markets," JRFM, MDPI, vol. 14(7), pages 1-16, July.
    3. Mensi, Walid & Vo, Xuan Vinh & Kang, Sang Hoon, 2022. "COVID-19 pandemic’s impact on intraday volatility spillover between oil, gold, and stock markets," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 702-715.
    4. Mensi, Walid & Vo, Xuan Vinh & Ko, Hee-Un & Kang, Sang Hoon, 2023. "Frequency spillovers between green bonds, global factors and stock market before and during COVID-19 crisis," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 558-580.
    5. Wulan Anggraeni & Sudradjat Supian & Sukono & Nurfadhlina Abdul Halim, 2023. "Catastrophe Bond Diversification Strategy Using Probabilistic–Possibilistic Bijective Transformation and Credibility Measures in Fuzzy Environment," Mathematics, MDPI, vol. 11(16), pages 1-30, August.
    6. Mensi, Walid & Reboredo, Juan C. & Ugolini, Andrea, 2021. "Price-switching spillovers between gold, oil, and stock markets: Evidence from the USA and China during the COVID-19 pandemic," Resources Policy, Elsevier, vol. 73(C).
    7. Echaust, Krzysztof & Just, Małgorzata, 2022. "Is gold still a safe haven for stock markets? New insights through the tail thickness of portfolio return distributions," Research in International Business and Finance, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Catastrophe bonds; Alternative investments; Diversifier; Hedge; Safe haven; DCC GARCH;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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