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Analyzing Safe Haven and Hedge Currencies Against the U.S. Stock Market During the COVID-19 Pandemic Crisis

Zhao, Xiaoxu LU (2020) NEKP01 20201
Department of Economics
Abstract
The recent COVID-19 pandemic crisis has resulted in great uncertainty and potential losses to the financial market. Investors must find the safe haven and hedge currencies in the current crisis to manage portfolios. In this paper, I demonstrate how to use the dynamic conditional correlations (DCC) model with student-t error distribution to assess the role of foreign exchange, cryptocurrencies, and spot gold as a safe haven or hedge against the U.S. S&P500 index. This assessment is conducted by examining the dynamic correlations between currency and stock during extreme market conditions and financial crises. The sample period spanned from January 2000 to May 2020. The evidence show that EUR and GBP are safe haven currencies, while JPY,... (More)
The recent COVID-19 pandemic crisis has resulted in great uncertainty and potential losses to the financial market. Investors must find the safe haven and hedge currencies in the current crisis to manage portfolios. In this paper, I demonstrate how to use the dynamic conditional correlations (DCC) model with student-t error distribution to assess the role of foreign exchange, cryptocurrencies, and spot gold as a safe haven or hedge against the U.S. S&P500 index. This assessment is conducted by examining the dynamic correlations between currency and stock during extreme market conditions and financial crises. The sample period spanned from January 2000 to May 2020. The evidence show that EUR and GBP are safe haven currencies, while JPY, CHF, and gold remain both safe haven and hedge currency during this pandemic crisis. I also evaluated the risk performance of hypothetical safe haven or hedge currency-stock portfolios constructed by using different trading strategies. The study results confirmed the usefulness of safe haven or hedge currencies for stock portfolio risk management and the superiority of using dynamic correlation information for the trade strategy. (Less)
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author
Zhao, Xiaoxu LU
supervisor
organization
course
NEKP01 20201
year
type
H2 - Master's Degree (Two Years)
subject
language
English
id
9028042
date added to LUP
2021-03-11 12:24:05
date last changed
2021-03-11 12:24:05
@misc{9028042,
  abstract     = {The recent COVID-19 pandemic crisis has resulted in great uncertainty and potential losses to the financial market. Investors must find the safe haven and hedge currencies in the current crisis to manage portfolios. In this paper, I demonstrate how to use the dynamic conditional correlations (DCC) model with student-t error distribution to assess the role of foreign exchange, cryptocurrencies, and spot gold as a safe haven or hedge against the U.S. S&P500 index. This assessment is conducted by examining the dynamic correlations between currency and stock during extreme market conditions and financial crises. The sample period spanned from January 2000 to May 2020. The evidence show that EUR and GBP are safe haven currencies, while JPY, CHF, and gold remain both safe haven and hedge currency during this pandemic crisis. I also evaluated the risk performance of hypothetical safe haven or hedge currency-stock portfolios constructed by using different trading strategies. The study results confirmed the usefulness of safe haven or hedge currencies for stock portfolio risk management and the superiority of using dynamic correlation information for the trade strategy.},
  author       = {Zhao, Xiaoxu},
  language     = {eng},
  note         = {Student Paper},
  title        = {Analyzing Safe Haven and Hedge Currencies Against the U.S. Stock Market During the COVID-19 Pandemic Crisis},
  year         = {2020},
}