During political, financial, and economic turmoil periods investors tend to flee toward what is called safe haven assets such as gold, Swiss franc and lately, Bitcoin. While previous literature supports such assumption, these studies were based on crises that faced certain geographic locations. The coronavirus pandemic on the other hand is a global crisis that affects the whole world. This study aims to examine the validity of the assumption that the Swiss franc, gold, and Bitcoin would still act as safe haven assets during Covid-19 pandemic period. Results obtained from this study shows that Swiss franc, gold had a positive returns during the study period which is in line with safe haven assets characteristics, but these returns were not caused by the stock markets negative returns. Bitcoin on the other hand showed negative returns during the study period and statistically significant positive relation with S&amp;P 500 returns indicating that Bitcoin cannot be used as a safe haven asset. JEL: G10; G11; G15  Article visualizations

AlAli, Musaed S.

During political, financial, and economic turmoil periods investors tend to flee toward what is called safe haven assets such as gold, Swiss franc and lately, Bitcoin. While previous literature supports such assumption, these studies were based on crises that faced certain geographic locations. The coronavirus pandemic on the other hand is a global crisis that affects the whole world. This study aims to examine the validity of the assumption that the Swiss franc, gold, and Bitcoin would still act as safe haven assets during Covid-19 pandemic period. Results obtained from this study shows that Swiss franc, gold had a positive returns during the study period which is in line with safe haven assets characteristics, but these returns were not caused by the stock markets negative returns. Bitcoin on the other hand showed negative returns during the study period and statistically significant positive relation with S&P 500 returns indicating that Bitcoin cannot be used as a safe haven asset.

 

JEL: G10; G11; G1

Musaed S. AlAli

NEUROSURGERY ENTHUSIASTIC WOMEN SOCIETY

SAFE HAVEN ASSETS: ARE THEY STILL SAFE DURING COVID-19 PANDEMIC PERIOD?

European Journals of Social Sciences Studies

  European Journal of Economic and Financial Research  ISSN: 2501-9430 ISSN-L: 2501-9430 Available on-line at: http://www.oapub.org/soc  Copyright © The Author(s). All Rights Reserved.                                                                                                                  © 2015 – 2020 Open Access Publishing Group                                                                                                                           91 doi: 10.5281/zenodo.3777255 Volume 4 │ Issue 1 │ 2020  SAFE HAVEN ASSETS: ARE THEY STILL SAFE  DURING COVID-19 PANDEMIC PERIOD?   Musaed S. AlAlii  Department of Insurance and Banking, College of Business Studies, The Public Authority for Applied Education and Training (PAAET),  Kuwait  Abstract:  During political, financial, and economic turmoil periods investors tend to flee toward what is called safe haven assets such as gold, Swiss franc and lately, Bitcoin. While previous literature supports such assumption, these studies were based on crises that faced certain geographic locations. The coronavirus pandemic on the other hand is a global crisis that affects the whole world. This study aims to examine the validity of the assumption that Swiss franc, gold, and Bitcoin would still act as safe haven assets during Covid-19 pandemic period. Results obtained from this study shows that Swiss franc and gold had a positive returns during the study period which is in line with safe haven assets characteristics, but these returns were not caused by the stock markets negative returns. Bitcoin on the other hand showed negative returns during the study period and statistically significant positive relation with S&P 500 returns indicating that Bitcoin cannot be used as a safe haven asset.  JEL: G10; G11; G15  Keywords: COVID-19, Coronavirus, safe haven assets, financial crisis, Gold, Swiss franc, Bitcoin, stock markets performance, pandemic period.  1. Introduction  With confirmed Coronavirus cases exceeding 2.07 million and a death toll of more than 134 thousands, as of April 15th 2020, spreading all around the world causing a lockout in large number of countries to contain the spread of the virus. The containment measures enforced by governments and the uncertainty regarding the future caused a huge confusion to the global economy leading to economic slowdown. Counties such as France reported a decline in its GDP for the first quarter of 2020 of around 6% while Germany is  i Correspondence: email ms.alali@paaet.edu.kw  Musaed S. AlAli  SAFE HAVEN ASSETS: ARE THEY STILL SAFE DURING COVID-19 PANDEMIC PERIOD?  European Journal of Economic and Financial Research - Volume 4 │ Issue 1 │ 2020                                                         92 reporting a decline of around 5% for the same period. Literature has shown that during crisis periods money flow from capital markets to safe haven assets triggering a spike in their prices and returns.  This characteristic is amplified in severe crises episodes during which safe haven assets particularly gain in value. Baur and Lucey (2010) and Baur and McDermott (2010) define a safe haven asset in general as “an asset that is uncorrelated or negatively correlated with another asset or portfolio in times of market stress or turmoil”. This definition would indicate that for an asset to be labeled as a safe haven asset it should have a zero or negative beta with risky assets such as stocks.   Swiss franc has always been known to act as a safe haven currency during crisis periods. Ranaldo and Soederlind (2010) find a systematic relation between risk increases, stock-market downturns, and the appreciation of safe-haven currencies. They concluded that Swiss franc is a safe haven currency because it provides a hedge in normal times and a positive returns during global turmoils. Auer (2015) stated that during the 2008 – 2009 global financial crisis and the concerns about some European countries government solvency, the Swiss franc rapidly appreciated in late 2010 and throughout the first three quarters of 2011 as the euro area debt crisis became increasingly severe. During the European solvency crisis, the IMF (2012) stated that safe haven capital inflows from the euro zone turmoil pushed the Swiss franc exchange rate to new heights that summer. In examining safe haven currencies during the 2008-2009 global financial crisis, Fatum and Yamamoto (2016) found that the Japanese yen was the “safest” safe haven currency during that period followed by the Swiss franc and then the U.S. dollar.  Hossfeld and MacDonald (2015) evaluated safe haven currencies during the period spanning from Jan 1986 to Sept 2012 and concluded that Swiss franc and the U.S. dollar qualify as safe haven currencies during that period.   Gold has always been synonyms with safety, Gorton and Rouwenhorst (2006) found that during the recession periods, a balanced index of commodity futures yields positive returns, contrary to stocks. Baur and Lucey (2010) found that gold tends to hold its value if stock markets experience extreme negative returns in Germany, the U.K. and the U.S.. McCown and Zimmerman (2006) found in their study that gold has an inflation-hedge ability and that gold has a zero beta with capital markets making it suitable for hedging. They also found that over the period of 33 years (1970-2003), gold showed a slightly higher mean return than Treasury Bills. In their study over the period 1979 to 2009, Baur and McDermott (2010) found that gold can be used as both a hedge and a safe haven for major European stock markets and the U.S. but not for Australia, Canada, Japan and large emerging markets such as the BRIC countries.   Bitcoin was first introduced by Nakamoto (2008) as a digital currency and payment system that is fully decentralized and depends on a sophisticated protocol. Since its introduction in 2009, the value of Bitcoin grew rapidly to more than $128.68 billion in 2020 (coinmarketcap.com). There are only 21 million bitcoins that can be mined in total. Yermack (2013) argues that Bitcoin appears to behave more like a speculative investment than a currency because its market capitalization is high compared to the economic transactions it facilitates. Despite its high price volatility, Molnár et al. (2015) found that including Bitcoins into a diversified portfolio would enhance its profitability. Musaed S. AlAli  SAFE HAVEN ASSETS: ARE THEY STILL SAFE DURING COVID-19 PANDEMIC PERIOD?  European Journal of Economic and Financial Research - Volume 4 │ Issue 1 │ 2020                                                         93 Using data spanning from July 18th 2011 to Dec 22nd 2015, Bouri, et al. (2017) found that Bitcoin can serve as an effective diversifier and that it has safe haven properties in some cases. Examining the hedging capability of Bitcoin, Dyhrberg (2015) found that it can be used to hedge against U.K. equities and the U.S. dollar.   2. Methodology  The aim of this study is to examine whether historical safe haven assets can still be a valid asset during the Covid-19 pandemic period. The results of the research are based on the financial performance of 6 stock markets which are the S&P 500, Shanghai SE, Nikkei 225, DAX, Australian ASX and FTSE 100 as independent variable and safe haven assets which are Swiss franc, gold, and Bitcoin as dependent variables over the period spanning from Feb 12th to April 9th 2020. In order to examine that effect, OLS regression is performed as follow;  𝑅𝑠ℎ𝑎 =  𝛼 +  ∑ 𝛽 (𝑅𝑋1→𝑛) + ε        (1)  Where 𝑅𝑠ℎ𝑎 is the return on safe haven asset, 𝑅𝑋 is the return on stock markets, and ε is the error term.   3. Data and Empirical Results   The results of the research are based on the financial performance of the S&P 500, Shanghai SE, Nikkei 225, DAX, Australian ASX, FTSE 100, Swiss franc, gold, and Bitcoin over the period Feb 12th to April 9th 2020. The data for this research were obtained from Yahoo finance website.   As illustrated in table 1, it can be seen that out of the safe haven assets under study only Bitcoin showed negative mean return while both Swiss franc and gold had a positive return. On the other hand, all 6 stock markets showed negative mean returns which verifies the validity of safe haven assets assumption for both gold and Swiss franc. Gold was the best performer during the study period with an average gain of 0.246% while Australia ASX index was the worst performer with an average return on -0.596%. In terms of return volatility, Bitcoin showed the highest volatility of 6.629% while the Swiss franc was the most stable asset with standard deviation of only 0.747%.  In order to avoid false regression results, the data should be normally distributed. According to Klein (1998) who stated that for data to be normally distributed, skewness value should be less than ± 3 and kurtosis should not exceed ± 10. By looking at the descriptive analysis in table 1, it can be seen that the data is normally distributed.      Musaed S. AlAli  SAFE HAVEN ASSETS: ARE THEY STILL SAFE DURING COVID-19 PANDEMIC PERIOD?  European Journal of Economic and Financial Research - Volume 4 │ Issue 1 │ 2020                                                         94 Table 1: Descriptive Analysis  CHF/USD Gold Bitcoin S&P Shanghai SE Nikkei 225 DAX ASX FTSE 100 Mean 0.024% 0.246% -0.376% -0.370% -0.098% -0.461% -0.560% -0.596% -0.572% Standard  Deviation 0.747% 2.360% 6.629% 4.692% 1.628% 2.960% 3.423% 3.783% 3.734% Kurtosis 1.755 1.487 14.419 0.250 -0.126 1.490 3.255 0.021 2.162 Skewness -0.079 0.721 -2.577 0.011 -0.227 0.793 -0.147 -0.139 -0.318 Count 40 40 40 40 40 40 40 40 40  The regression output results are presented in table 2. Results shows that returns on Swiss franc and gold can’t be explained or linked to the stock markets returns and that such returns are affected by other factors. The Swiss franc was the least effected by stock markets returns since the R square of the model was only 4.9% and it was not statistically insignificant. The same thing can be said for the gold model, even though the model had an R square of 0.466 the model cannot be labeled as a “good fit” since the significance F of the model was higher than 0.05. On the other hand, the Bitcoin model showed that returns on stock markets were only able to explain 30.6% of Bitcoin returns at the 95% confidence level. When it comes to the effect of stock markets returns on Bitcoin returns, it can be seen that Bitcoin returns only had statistically significant positive relation with S&P 500 returns and this would indicate that Bitcoin cannot be labeled as safe haven asset since safe haven assets should have a zero or negative beta especially during turmoil periods.   Table 2: OLS Regression Output  Swiss Franc Gold Bitcoin R Square 0.049 0.466 0.306 Standard Error 0.008 0.023 0.070 Significance F 0.942 0.201 0.047  Coefficients P-Value Coefficients P-Value Coefficients P-Value Intercept 0.001 0.972 0.004 0.3127 0.006 0.5882 S&P -0.0019 0.952 0.082 0.3828 0.799*** 0.0073 Shanghai SE 0.0902 0.373 0.114 0.6974 0.634 0.4702 Nikkei 225 0.0309 0.613 0.292 0.1062 0.356 0.5036 DAX 0.0213 0.872 0.220 0.5698 -1.074 0.3552 ASX -0.0142 0.783 0.023 0.8762 -0.005 0.9918 FTSE 100 -0.0612 0.662 -0.355 0.3848 0.742 0.5429 *,**,*** correspond to the 90%,95%, and 99% confidence levels respectively.   4. Conclusion  The aim of this study is to examine whether or not Swiss franc, gold, and Bitcoin can work as a safe haven assets during the Coronavirus pandemic period. One of the major characteristics of safe haven assets is that the return on these assets should have a zero or negative beta with stock markets returns during turmoil periods. Results obtained from this study showed that Swiss franc and gold had positive returns during the Coronavirus pandemic period indicating that they can be labelled as safe haven assets but these returns were not caused by stock markets negative returns rather by other variables. Musaed S. AlAli  SAFE HAVEN ASSETS: ARE THEY STILL SAFE DURING COVID-19 PANDEMIC PERIOD?  European Journal of Economic and Financial Research - Volume 4 │ Issue 1 │ 2020                                                         95 Bitcoin on the other hand showed negative returns and statistically significant positive relation with the S&P 500 returns and that would indicate that Bitcoin cannot be labeled as a safe haven asset during Covid-19 pandemic period.     References  Auer, Raphael. (2015). A safe haven: international demand for Swiss francs during the Euro Area debt crisis, SNB Quarterly Bulletin, No 2015.Q2, Swiss National Bank. Baur, D. G., Lucey, B. M. (2010). Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold. Financial Review, 45(2), 217–229. Baur, D. G., McDermott, T. K. (2010). Is Gold a Safe Haven? International Evidence. Journal of Banking and Finance, 34(8), 1886–1898. Bouri, E., P. Molnár, G. Azzi, D. Roubaud, and L. I. Hagfors. (2017). On the hedge and safe haven properties of bitcoin: Is it really more than a diversifier? Finance Research Letters, 20, 192–198. Dyhrberg, A. H. (2015). Hedging capabilities of Bitcoin. Is it the virtual gold?, Finance Research Letters, 16, 139–144. Fatum, R., Yamamoto, Y. (2016). Intra-safe Haven Currency Behavior during the Global Financial Crisis, Journal of International Money and Finance, 66, 49–64. Gorton G and G. Rouwenhorst. (2006). Facts and fantasies about commodity futures, Financial Analysts Journal, 62, 47-68. Hossfeld, O., MacDonald, R. (2015). Carry Funding and Safe Haven Currencies: A Threshold Regression Approach, Journal of International Money and Finance, 59, 185–202. IMF (2012). Article IV staff report on Switzerland, International Monetary Fund. Klein, A. (1998). Firm performance and board committee structure, The Journal of Law and Economics, 41 (1), 275-304. McCown J. R., Zimmerman J. R. (2006). Is gold a zero-beta asset? Analysis of the investment potential of precious metals. Available from SSRN: http: // ssrn.com/ abstract= 920496 . Molnár, P., Vagstad, K. and Valstad, O. C. A. (2015). A bit risky? A comparison between Bitcoin and other assets using an intraday value at risk approach, Working Paper, available at: http://www.diva-portal.org/smash/get/diva2:742882/fulltext01.pdf. Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system, available at: https://bitcoin.org/bitcoin.pdf. Ranaldo, A., and Soederlind, P. (2010). Safe Haven Currencies, Review of Finance, 14(3), 385-407. Yermack, D. (2013). Is Bitcoin a real currency? An economic appraisal, Working Paper No. w19747, National Bureau of Economic Research, available at: http://www.nber.org/papers/w19747.pdf.   Musaed S. AlAli  SAFE HAVEN ASSETS: ARE THEY STILL SAFE DURING COVID-19 PANDEMIC PERIOD?  European Journal of Economic and Financial Research - Volume 4 │ Issue 1 │ 2020                                                         96 Appendix  Figure 1: Stock Markets and Safe Haven Assets Returns                           Musaed S. AlAli  SAFE HAVEN ASSETS: ARE THEY STILL SAFE DURING COVID-19 PANDEMIC PERIOD?  European Journal of Economic and Financial Research - Volume 4 │ Issue 1 │ 2020                                                         97 Figure 2: Stock Markets and Safe Haven Assets Performance               Musaed S. AlAli  SAFE HAVEN ASSETS: ARE THEY STILL SAFE DURING COVID-19 PANDEMIC PERIOD?  European Journal of Economic and Financial Research - Volume 4 │ Issue 1 │ 2020                                                         98                                                                  Creative Commons licensing terms Authors will retain copyright to their published articles agreeing that a Creative Commons Attribution 4.0 International License (CC BY 4.0) terms will be applied to their work. Under the terms of this license, no permission is required from the author(s) or publisher for members of the community to copy, distribute, transmit or adapt the article content, providing a proper, prominent and unambiguous attribution to the authors in a manner that makes clear that the materials are being reused under permission of a Creative Commons License. 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SAFE HAVEN ASSETS: ARE THEY STILL SAFE DURING COVID-19 PANDEMIC PERIOD?

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