The Role of CAT Bonds in an International Multi-Asset Portfolio: Diversifier, Hedge, or Safe Haven?
17 Pages Posted: 23 Apr 2019 Last revised: 29 Sep 2020
Date Written: March 21, 2019
We examine whether CAT bonds can serve as a hedge or a safe haven for global stock, bond, real estate, commodity, private equity, and infrastructure markets. Our results indicate that CAT bonds are a poor hedge, but they act as an effective diversifier against all asset classes under investigation. Moreover, CAT bonds can serve as a strong safe haven against extreme price drops of stocks only during the post-crisis period.
Keywords: CAT Bonds, Alternative Investments, Diversifier, Hedge, Safe Haven, DCC GARCH
JEL Classification: G11, G15
Suggested Citation: Suggested Citation