Global Risk and Safe Haven Currency: Copula-DCC Approach
In this paper, we employ the Copula-Dynamic Conditional Correlation approach to investigate the safe-haven currency status of eight currencies as well as gold and Bitcoin against the main stock markets. Based on the properties of the estimated dynamic conditional correlations, we classify the currencies into a diversifier, a hedge and a safe haven currency. We also employ the threshold approach to investigate whether market uncertainty measured by the VIX would have significant effects on the estimated dynamic conditional correlation. This analysis is closely related to the study of contagion. We find that the CHF and gold are the strong hedges against the U.S. stock market except for the European sovereign crisis period, and the JPY and Bitcoin have hedge and /or safe currency status. We also find that the degrees of the role of Bitcoin as a hedge currency, and roles of the JPY and gold as a hedge and/or safe haven currency are not affected by the increase in market uncertainty, while that of the CHF as a hedge currency would be weakened as market uncertainty increases.
Graduate School of Business Administration, Hitotsubashi University
Faculty of Humanities and Social Sciences, Kochi University
Working Paper Series No. G-1-26 / Hitotsubashi University Center for Financial Research