Searching for Safe-haven Assets During the COVID-19 Pandemic

27 Pages Posted: 19 May 2020

See all articles by Qiang Ji

Qiang Ji

Chinese Academy of Sciences (CAS) - Institute of Policy and Management

Dayong Zhang

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management

Yuqian Zhao

University of Essex

Date Written: April 25, 2020

Abstract

The ongoing COVID-19 pandemic has shaken the global financial system and caused great turmoil. Facing unprecedented risks in the markets, people have increasing needs to find a safe haven for their investments. Given that the nature of this crisis is a combination of multiple problems, it is substantially different from all other financial crises known to us. It is therefore urgent to re-evaluate the safe-haven role of some traditional asset types, namely, gold, cryptocurrency, foreign exchange and commodities. This paper introduces a sequential monitoring procedure to detect changes in the left-quantiles of asset returns, and to assess whether a tail change in the equity index can be offset by introducing a safe-haven asset into a simple mean-variance portfolio. The sample studied covers a training period between August-December 2019 and a testing period of December 2019-March 2020. Furthermore, we calculate the cross-quantilogram between pair-wise asset returns and compare their directional predictability on left-quantiles in both normal market conditions and the COVID-19 period. The main results show that the role of safe haven becomes less effective for most of the assets considered in this paper, while gold and soybean commodity futures remain robust as safe-haven assets during this pandemic.

Keywords: COVID-19, Cross-quantilogram, Safe-haven assets, Sequential detection, Tail change

JEL Classification: C12, C52, G11, G15

Suggested Citation

Ji, Qiang and Zhang, Dayong and Zhao, Yuqian, Searching for Safe-haven Assets During the COVID-19 Pandemic (April 25, 2020). Available at SSRN: https://ssrn.com/abstract=3602780 or http://dx.doi.org/10.2139/ssrn.3602780

Qiang Ji

Chinese Academy of Sciences (CAS) - Institute of Policy and Management ( email )

No.15 ZhongGuanCun BeiYiTiao Alley
Haidian District
Beijing, 100190
China

Dayong Zhang (Contact Author)

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun Street
Chengdu, Sichuan 610074
China

Yuqian Zhao

University of Essex ( email )

Essex Business School
Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
CO4 3SQ (Fax)

HOME PAGE: http://https://www.essex.ac.uk/people/zhaoy37900/yuqian-zhao

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