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Safe Haven Assets and Investor Behavior Under Uncertainty

Author

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  • Dirk G Baur
  • Thomas K.J. McDermott

    (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 behavior 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 the financial system and when they receive ambiguous signals. In contrast, investors buy US government bonds when faced with extreme but unambiguous signals.

Suggested Citation

  • Dirk G Baur & Thomas K.J. McDermott, 2012. "Safe Haven Assets and Investor Behavior Under Uncertainty," Working Paper Series 173, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:wpaper:173
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    File URL: http://www.finance.uts.edu.au/research/wpapers/wp173.pdf
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    References listed on IDEAS

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    Cited by:

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    2. Frode Kjærland & Aras Khazal & Erlend A. Krogstad & Frans B. G. Nordstrøm & Are Oust, 2018. "An Analysis of Bitcoin’s Price Dynamics," JRFM, MDPI, vol. 11(4), pages 1-18, October.
    3. Mensi, Walid & Ali, Syed Riaz Mahmood & Vo, Xuan Vinh & Kang, Sang Hoon, 2022. "Multiscale dependence, spillovers, and connectedness between precious metals and currency markets: A hedge and safe-haven analysis," Resources Policy, Elsevier, vol. 77(C).
    4. Hossfeld, Oliver & MacDonald, Ronald, 2015. "Carry funding and safe haven currencies: A threshold regression approach," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 185-202.
    5. Li, Sile & Lucey, Brian M., 2017. "Reassessing the role of precious metals as safe havens–What colour is your haven and why?," Journal of Commodity Markets, Elsevier, vol. 7(C), pages 1-14.
    6. Robiyanto Robiyanto & Bayu Adi Nugroho & Eka Handriani & Andrian Dolfriandra Huruta, 2020. "Hedge effectiveness of put replication, gold, and oil on ASEAN-5 equities," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-29, December.
    7. Charteris, Ailie & Kallinterakis, Vasileios, 2021. "Feedback trading in retail-dominated assets: Evidence from the gold bullion coin market," International Review of Financial Analysis, Elsevier, vol. 75(C).
    8. Chi-Wei Su & Lidong Pang & Muhammad Umar & Oana-Ramona Lobonţ, 2022. "Will Gold Always Shine amid World Uncertainty?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(12), pages 3425-3438, September.
    9. Chang, Meng-Shiuh & Ju, Peijie & Liu, Yilei & Hsueh, Shao-Chieh, 2022. "Determining hedges and safe havens for stocks using interval analysis," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    10. Hakan Öztunç & Mehmet Orhan, 2021. "Gold Demand by Central Banks: A Comparative Study of Emerging Market and Advanced Economies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(9), pages 2687-2698, July.

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    More about this item

    Keywords

    safe haven; uncertainty; gold; bonds; Ellsberg decision rule; black swan event;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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