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The Destruction of a Safe Haven Asset?

Gold has been a store of value for centuries and a safe haven for investors in the past decades. However, the increased investment in gold for speculative or hedging purposes has changed the safe haven property. We demonstrate theoretically and empirically that investor behaviour has the potential to destroy the safe haven property of gold. The results suggest that an asset cannot be both an investment asset and an effective safe haven asset. This finding has important implications for financial stability since assets are more likely to exhibit excess comovement and volatility in the absence of a safe haven.

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Paper provided by Finance Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 174.

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Length: 20
Date of creation: 01 Sep 2012
Date of revision:
Handle: RePEc:uts:wpaper:174
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  1. Peter C. B. Phillips & Jun Yu, 2010. "Dating the Timeline of Financial Bubbles during the Subprime Crisis," Cowles Foundation Discussion Papers 1770, Cowles Foundation for Research in Economics, Yale University.
  2. Baur, Dirk G. & McDermott, Thomas K., 2010. "Is gold a safe haven? International evidence," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1886-1898, August.
  3. Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
  4. Ke Tang & Wei Xiong, 2010. "Index Investment and Financialization of Commodities," NBER Working Papers 16385, National Bureau of Economic Research, Inc.
  5. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
  6. Dirk G. Baur & Brian M. Lucey, 2007. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Institute for International Integration Studies Discussion Paper Series iiisdp198, IIIS.
  7. Brian H. Boyer & Tomomi Kumagai & Kathy Yuan, 2006. "How Do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices," Journal of Finance, American Finance Association, vol. 61(2), pages 957-1003, 04.
  8. Laura E. Kodres & Matthew Pritsker, 2002. "A Rational Expectations Model of Financial Contagion," Journal of Finance, American Finance Association, vol. 57(2), pages 769-799, 04.
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