Is this time really different? Flight-to-safety and the COVID-19 crisis.
PLoS One
; 16(5): e0251752, 2021.
Article
in English
| MEDLINE | ID: covidwho-1243845
ABSTRACT
During periods of market stress, risk-averse investors reallocate their investments from stocks to gold in a bid to hedge risks. Market participants interpret the induced gold price increase as an indication of safe-haven purchases and a signal of increased uncertainty in the general economic and financial conditions, thereby causing higher gold price volatility. The aim of this paper is to analyze whether this flight to safety effect can be observed during the COVID-19 crisis, which is considered to be a one-of-a-kind crisis and obviously of different origin compared to previous (financial) crises. By examining the interactions between the (option-implied) volatilities of the stock market (VIX) and of the gold (GVZ) and oil (OVX) markets, the main findings indicate that there is a granger causality in general between the equity market and the gold as well as the oil market. During the COVID-19 crisis, a stronger influence of the equity market on the oil market can be observed. Based on symmetric causality tests that are typically employed in the literature, this cannot be observed for the gold market. However, once we control for asymmetric causal interactions, we find that positive shocks in VIX cause positive shocks in GVZ. Hence, the typical flight to safety effect, similar to the one observed during other (financial) crises can also be identified for the COVID-19 crisis. The causality between the equity and oil market is triggered by political factors as well as the economic impact of the crisis which induces a sharp drop in demand for oil.
Full text:
Available
Collection:
International databases
Database:
MEDLINE
Main subject:
Commerce
/
COVID-19
/
Investments
Type of study:
Observational study
/
Prognostic study
Limits:
Humans
Language:
English
Journal:
PLoS One
Journal subject:
Science
/
Medicine
Year:
2021
Document Type:
Article
Affiliation country:
Journal.pone.0251752
Similar
MEDLINE
...
LILACS
LIS