What Makes A Safe Haven ? Equity and Currency Returns for 6 OECD Countries During the US Financial Crisis

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We estimate dynamic conditional correlations (DCCs) between equity and currency returns during the financial crisis using Engle’s (2002) model. DCCs and their volatilities increased for all countries, increasing investors’ risk aversion and leading to the “flight-to-quality.” The US, Japan, and Switzerland have negative DCCs, making them “safe havens” that experienced capital inflows, whereas the UK, Australia, and Canada have positive DCCs. Stock and foreign exchange volatility indexes increase DCCs for countries without safe assets; however, they decrease DCCs for countries with safe assets. Higher country-specific risk, as measured by its TED spread, and CDS spread, means higher DCCs
Publisher
World Business Institute
Issue Date
2014-12-09
Language
English
Citation

World Business, Finance and Management Conference

URI
http://hdl.handle.net/10203/193199
Appears in Collection
RIMS Conference PapersRIMS Conference Papers

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