Which assets are safe havens? Evidence from 13 stock market downturns

Abstract

This study investigates the safe haven (SH) efficacy of 11 assets against 13 stock market downturns, utilizing data from the MSCI World Index, MSCI Emerging Markets Index, and stock indices of the five largest economies. Our comprehensive analysis reduces the likelihood that identified SHs reflect the idiosyncrasies of specific events or markets, enabling us to systematically document which assets serve as SHs in particular types of crises. Our findings reveal three key insights. First, the effectiveness of SH assets varies depending on the nature of the downturn. Government bonds tend to be effective SHs during downturns triggered by macroeconomic or financial market events, as these downturns are typically associated with lower inflation and interest rates. Conversely, geopolitical conflicts often diminish the SH properties of government bonds. Second, the geographical and financial proximity of the SH asset to the source of the downturn affects its efficacy. Assets from countries directly involved in or closely connected to the crisis are less likely to serve as SHs. Third, Japan's minimal involvement in geopolitical conflicts has established the Japanese Yen and Japanese government bonds as the most reliable SHs during such conflicts.