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Safe haven currencies: A dependence-switching copula approach

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  • Michelis, Leo
  • Ning, Cathy
  • Ponrajah, Jeremey

Abstract

This paper presents a unique approach to investigating the safe haven properties of five major currencies: the US dollar, the Japanese yen, the Swiss franc, the euro, and the British pound. Unlike other studies, we employ a flexible dependence-switching copula model to examine the joint tail dependence between these currencies and global market risk. This innovative method allows us to directly measure the strength of safe haven currencies when they are most relevant. Using daily data from 1999 to 2024, our empirical results show that the US dollar remains a safe haven currency during periods of heightened global risk aversion. Moreover, the safe haven behavior of the yen persists even in the presence of the US dollar’s appreciation. The Swiss franc exhibits safe haven characteristics, albeit less pronounced than the US dollar, and the euro and the pound demonstrate the weakest safe haven behavior. In addition, we find that the safe haven status of a currency fluctuates over time, with the US dollar being the strongest safe haven currency during periods of major global market turmoil.

Suggested Citation

  • Michelis, Leo & Ning, Cathy & Ponrajah, Jeremey, 2025. "Safe haven currencies: A dependence-switching copula approach," Finance Research Letters, Elsevier, vol. 86(PC).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pc:s1544612325017192
    DOI: 10.1016/j.frl.2025.108465
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