The 2008 Global Financial Crisis and COVID-19 Pandemic: How Safe are the Safe Haven Assets?

Abstract

This paper compares the performance of safe haven assets during two stressful stock market regimes – the 2008 Global Financial Crisis (GFC) and COVID-19 pandemic. Our analysis across the ten largest economies in the world shows that the traditional choice, gold, acts as a safe haven during the GFC but fails to protect investor wealth during COVID. Our results suggest that investors might have lost trust in gold. Furthermore, silver does not serve as a safe haven during either crisis. The Swiss Franc serves as a strong safe haven during both crises; whereas, the US dollar acts more effective as a safe haven during the GFC than in COVID. The US Treasuries maintain its safe havens status during both crises even though the US has the highest death toll and infection rates of COVID in the world. The largest cryptocurrency, Bitcoin appears as a speculative asset and presents more systematic risk than investment in the stock markets during COVID. Finally, the largest stablecoin, Tether emerges as an effective global safe haven across the sample countries during COVID. Thus, our results suggest that, during a pandemic, investors should prefer liquid and stable assets rather than gold.

Keywords: COVID-19, 2008 GFC, gold, safe haven, stablecoin, bitcoin

JEL Classification: D8, G01, G10, G11, G14, G14