A1 - Virginie Coudert
A1 - Cyriac Guillaumin
A1 - Hélène Raymond
TI - Looking at the Other Side of Carry Trades: Are there any Safe Haven Currencies?
IS - 2014-03
T3 - Working Papers
KW - Carry trades
KW - Safe haven
KW - Safe haven currencies
KW - Fama equation
KW - Financial cycle
N2 - We define “safe haven currencies” as those able to yield positive excess returns during crises and show that they are likely to have negative risk premia on the long-run. We try to identify them empirically by considering a sample of 26 currencies from advanced and emerging countries over a period spanning from 1999 to 2013. We first spot the currencies yielding negative mean excess returns over the long run and positive ones during crises; only the Japanese yen (JPY) and the US dollar (USD) meet these conditions. Second, we run a smooth transition regression (STR) of the Fama equation, in which we add the VIX as an explanatory and a transition variable, in order to capture the response of exchange rates over the global fi nancial cycle. The results also point out to the USD and the JPY as the only candidates for a safe haven role; despite its long-run appreciation trend, the Swiss franc does not qualify for this role, as it tends to follow the downward movement of the euro during the recent financial turmoil.
ER -