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Is this time really different? Flight-to-safety and the COVID-19 crisis
Celina Löwen1, Bilal Kchouri1, Thorsten Lehnert1
1Department of Finance, University of Luxembourg, Luxembourg, Luxembourg.
Plos One
|May 26, 2021
Summary
During market stress, investors often buy gold as a safe haven. This study confirms the "flight to safety" effect for gold during the COVID-19 crisis, even with asymmetric causality.
Area of Science:
- * Financial Economics
- * Market Volatility Analysis
Background:
- * Investors typically shift to gold during market stress for risk hedging.
- * Gold price increases are interpreted as safe-haven demand and economic uncertainty.
- * The COVID-19 crisis presented unique economic and financial conditions.
Purpose of the Study:
- * To investigate the
- flight to safety
- effect in gold during the COVID-19 crisis.
- * To analyze the causal relationships between stock, gold, and oil market volatilities.
- * To determine if asymmetric causality explains gold's safe-haven behavior.
Main Methods:
- * Examination of Granger causality between stock (VIX), gold (GVZ), and oil (OVX) market volatilities.
- * Application of symmetric and asymmetric causality tests.
- * Analysis of the COVID-19 crisis period.
Main Results:
- * General Granger causality exists between equity, gold, and oil markets.
- * Equity market showed a stronger influence on the oil market during COVID-19.
- * Asymmetric causality tests revealed positive shocks in VIX cause positive shocks in GVZ.
Conclusions:
- * The typical
- flight to safety
- effect for gold was observed during the COVID-19 crisis.
- * Asymmetric causality is key to identifying this effect in the gold market.
- * Equity-oil market causality during COVID-19 was linked to political factors and demand shocks.
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