Financial Turmoil and Safe Haven Assets

34 Pages Posted: 14 Feb 2012 Last revised: 12 May 2013

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Thomas K. J. McDermott

University of Galway

Date Written: May 13, 2013


Financial crises and contagion have highlighted the need for safe haven assets. However, their existence, role and interactions are not well understood. We analyze the two most prominent yet fundamentally different safe haven assets, US government bonds and gold. Our econometric analysis explicitly models the dynamic interaction between these assets and the global stock market. While both assets appear to act as safe havens, we find that gold, in contrast to US government bonds, becomes increasingly sensitive to large negative shocks in the stock market. Gold therefore appears to be a stronger safe haven in extreme conditions despite the fact that it is more risky and less liquid than bonds. We offer a behavioral interpretation to explain our findings.

Keywords: safe haven, safe assets, uncertainty, gold, US government bonds, Ellsberg decision rule, ambiguity-aversion, black swan event, contagion

JEL Classification: D03, D81, G01, G11

Suggested Citation

Baur, Dirk G. and McDermott, Thomas K. J., Financial Turmoil and Safe Haven Assets (May 13, 2013). Available at SSRN: or

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


Thomas K. J. McDermott

University of Galway ( email )

University Road
Galway, Co. Galway

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