The Destruction of a Safe Haven Asset?
Dirk G. Baur
University of Western Australia - Business School; Financial Research Network (FIRN)
Kristoffer J. Glover
University of Technology Sydney (UTS) - School of Finance and Economics; Financial Research Network (FIRN)
August 31, 2012
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 behavior 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.
Number of Pages in PDF File: 19
Keywords: safe haven, gold, investor behavior, funding constraints, contagion
JEL Classification: D03, D81, G01, G11
Date posted: September 7, 2012