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Safe Haven Assets and Investor Behaviour Under Uncertainty

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  • Dirk G. Baur

    ()
    (University of Technology, Sydney - School of Finance and Economics)

  • Thomas K.J. McDermott

    ()
    (School of Business and Institute for International Integration Studies, Trinity College Dublin)

Abstract

We study two different safe haven assets, US government bonds and gold, and examine how the price changes of these assets can be used to infer investor behaviour under uncertainty. We find that investors are ambiguity-averse, that is they buy gold when faced with extreme uncertainty about the state of the economy or thefinancial system and when they receive ambiguous signals. In contrast, investors buyUS government bonds when faced with extreme but unambiguous signals. We also show that there is overreaction to ambiguous signals.

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Bibliographic Info

Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp392.

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Length: 57 pages
Date of creation: Sep 2011
Date of revision: Feb 2012
Handle: RePEc:iis:dispap:iiisdp392

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Keywords: uncertainty; financial crisis; safe haven; gold; bonds; Ellsberg decision rule; black swan event;

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