Is the Renminbi a safe haven?

We investigate the relationship between market uncertainty and the relative value of the Renminbi in the offshore market against currencies that the safe haven literature typically considers as the traditional safe haven currency candidates. Our sample spans the February 2011 to May 2017 period. Band spectral regression models enable us to capture that the relationship between market uncertainty and the relative value of the Renminbi is frequency dependent. While we find evidence of some degree of safe haven currency behavior of the Renminbi during the early part of our sample, our findings do not support the suggestion that the Renminbi is currently a safe haven currency or that the Renminbi is progressing towards safe haven currency status.     

Is gold a safe haven against equity market investment in emerging and developing countries?

The hedge and safe haven properties of gold in advanced economies’ financial markets are well documented in the literature. Studies of how this issue relates to emerging markets and developing countries are, however, very limited. This paper aims to fill this gap by empirically analyzing the hedge and safe haven properties of gold against equity market investment for a large group of emerging and developing countries from the perspective of both domestic and foreign investors. We also check whether our findings differ in the post-global crisis period. Our results show that for domestic investors, gold is both a hedge and a safe haven in most of these countries. This result also holds in the post-2008 crisis period. In addition, when falls in equity markets become more severe, gold acts as a safe haven in a larger set of countries for both domestic and foreign investors.     

Is gold the best hedge and a safe haven under changing stock market volatility?

We evaluate the role of gold and other precious metals relative to volatility (Volatility Index (VIX)) as a hedge (negatively correlated with stocks) and safe haven (negatively correlated with stocks in extreme stock market declines) using data from the US stock market. Using daily data from November 1995 to November 2010, we find that gold, unlike other precious metals, serves as a hedge and a weak safe haven for US stock market. However, we find that VIX serves as a very strong hedge and a strong safe haven during our sample period. We also find that in periods of extremely low or high volatility, gold does not have a negative correlation with the US stock market. Our results show that VIX is a superior hedging tool and serves as a better safe haven than gold during our sample period. We highlight the practical significance of our results for financial market participants by conducting a portfolio analysis.     

Is gold a safe haven or a hedge for the US dollar? Implications for risk management

We assess the role of gold as a safe haven or hedge against the US dollar (USD) using copulas to characterize average and extreme market dependence between gold and the USD. For a wide set of currencies, our empirical evidence revealed (1) positive and significant average dependence between gold and USD depreciation, consistent with the fact that gold can act as hedge against USD rate movements, and (2) symmetric tail dependence between gold and USD exchange rates, indicating that gold can act as an effective safe haven against extreme USD rate movements. We evaluate the implications for mixed gold-currency portfolios, finding evidence of diversification benefits and downside risk reduction that confirms the usefulness of gold in currency portfolio risk management.     

How safe are the safe haven assets?

The aim of this paper is to examine which of the assets commonly believed to be safe havens do, in fact, protect investors during periods of severe financial instability. Using a broad dataset of 32 assets over the period of 1964–2014, we examine the relationship of these assets with the US equity market during financial crises to determine which of them are safe havens for US investors, hedges, or speculations. We find that the US Treasuries and Japanese yen are the strongest safe haven investments in months characterized by large declines in market value or excessive volatility. We also document that the recent global financial crisis had significantly negative ramifications on the safe haven properties of many of these assets. Our out-of-sample analyses show that while, in general, predictive market exposures are negatively correlated with asset returns in strong market downturns, those of even the strongest safe haven assets are often statistically insignificant.     

Are gold,USD, and Bitcoin hedge or safe haven against stock? The implication for risk management

This study investigates whether gold, USD, and Bitcoin are hedge and safe haven assets against stock and if they are useful in diversifying downside risk for international stock markets. We propose a combined GO-GARCH-EVT-copula approach to examine the hedge and safe haven properties of gold, USD, and Bitcoin. We then examine the attractiveness of these assets in reducing stock portfolio risk by using downside risk measures estimated by the proposed approach and other competing models. We also evaluate the relative performance of the proposed model in reducing downside risk with the competing models. The findings of the study indicate that the USD is the most valuable hedge and safe haven asset closely followed by gold, while Bitcoin is the least valuable. It is also observed that the proposed combined approach performs best in reducing the portfolio downside risk. The findings of this study are of significance for portfolio managers and individual investors who wish to protect the portfolio value during market turmoil.     

Is gold a hedge against inflation? A wavelet time-scale perspective

Among the many presumed characteristics of gold, the ability to act as an enduring store of value is frequently noted. In this paper, the ability of gold to dynamically hedge against inflation is examined for various holding periods using the continuous wavelet transformation. Gold is first established as both a short- and long-term hedge against realized inflation for a number of developed economies. Dynamic analysis demonstrates that these hedging properties are not limited to a single historical cohort. Next, gold is shown to comove with unexpected inflation across all countries examined, albeit with some variation in the direction of the relationship. Finally, the capacity of both gold futures and gold stocks to act as a hedge against inflation is demonstrated.     

How credible is a too-big-to-fail policy? International evidence from market discipline

This paper analyzes in an international sample of banks from 104 countries if the sensitivity of the cost of deposits to bank risk varies across banks depending on their systemic and absolute size. We analyze a period before the 2007 financial crisis and control for endogeneity of bank size, intervention policies in past banking crises, and soundness of countries’ public finances. Our results are consistent with the predominance of the too-big-to-fail hypothesis, although this effect is stronger in countries that did not impose losses on depositors in past banking crises and in countries with sounder public finances.     

International evidence on fiscal solvency: Is fiscal policy “responsible”?

We conduct a cross-country empirical analysis of fiscal solvency based on dynamic stochastic general equilibrium conditions. The results show evidence of fiscal solvency, in the form of a robust positive conditional response of the primary balance to changes in public debt, in panels for emerging and industrial economies and in a combined panel. Emerging economies show a stronger response and hence converge to lower mean debt-output ratios, as observed in the data. The results are weaker for countries with debt ratios exceeding panel means and medians. Hence, we can separate countries where fiscal solvency holds from those where it remains in doubt.     

What determines fund performance persistence? International evidence

We study performance persistence across a global sample of equity mutual funds from 27 countries. In contrast to the existing U.S.‐based evidence, we find that net performance persistence is present in the majority of fund industries, suggesting that fund manager skill is commonplace rather than a rarity. Consistent with the intuition that more competition in the mutual fund industry makes remaining a winner fund less likely but keeping a loser fund at the bottom of the performance ranks more probable, we show that competitiveness explains the cross‐sectional variation in performance persistence.     

Is there a J-curve for Azerbaijan? New evidence from industry-level analysis

This paper estimates the J-curve for Azerbaijan using quarterly industry-level data over the 2000–2009 period. Empirical results show that in 3 of the 10 strategic industries there is strong evidence for the fulfilment of the Marshall–Lerner condition, as the trade balance improves in the long run in reaction to a currency devaluation. In most industries the J-curve pattern is observed in the short run. All 10 cases exhibit long-run cointegration and are stable according to the CUSUM and CUSUMSQ stability tests. These findings are largely consistent with the existing literature on the Azerbaijani J-curve and carry important policy implications.     

Do institutional investors drive corporate social responsibility? International evidence

This paper assesses whether shareholders drive the environmental and social (E&S) performance of firms worldwide. Across 41 countries, institutional ownership is positively associated with E&S performance with additional tests suggesting this relation is causal. Institutions are motivated by both financial and social returns. Investors increase firms’ E&S performance following shocks that reveal financial benefits to E&S improvements. In cross section, investors increase firms’ E&S performance when they come from countries with a strong community belief in the importance of E&S issues, but not otherwise. As such, these institutional investors transplant their social norms regarding E&S issues around the world.     

Is yours a learning organization?

An organization with a strong learning culture faces the unpredictable deftly. However, a concrete method for understanding precisely how an institution learns and for identifying specific steps to help it learn better has remained elusive. A new survey instrument from professors Garvin and Edmondson of Harvard Business School and assistant professor Gino of Carnegie Mellon University allows you to ground your efforts in becoming a learning organization. The tool's conceptual foundation is what the authors call the three building blocks of a learning organization. The first, a supportive learning environment, comprises psychological safety, appreciation of differences, openness to new ideas, and time for reflection. The second, concrete learning processes and practices, includes experimentation, information collection and analysis, and education and training. These two complementary elements are fortified by the final building block: leadership that reinforces learning. The survey instrument enables a granular examination of all these particulars, scores each of them, and provides a framework for detailed, comparative analysis. You can make comparisons within and among your institution's functional areas, between your organization and others, and against benchmarks that the authors have derived from their surveys of hundreds of executives in many industries. After discussing how to use their tool, the authors share the insights they acquired as they developed it. Above all, they emphasize the importance of dialogue and diagnosis as you nurture your company and its processes with the aim of becoming a learning organization. The authors' goal--and the purpose of their tool--is to help you paint an honest picture of your firm's learning culture and of the leaders who set its tone.     

Is management still a science?

New technologies are transforming products, markets, and entire industries. Yet the more science and technology reshape the essence of business, the less useful the concept of management itself as a science seems to be. On reflection, this paradox is not so surprising. The traditional scientific approach to management promised to provide managers with the capacity to analyze, predict, and control the behavior of the complex organizations they led. But the world most managers currently inhabit often appears to be unpredictable, uncertain, and even uncontrollable. In the face of this more volatile business environment, the old-style mechanisms of "scientific management" seem positively counterproductive. And science itself appears less and less relevant to the practical concerns of managers. In this article, science journalist David Freedman argues that the problem lies less in the shortcomings of a scientific approach to management than in managers' understanding of science. What most managers think of as scientific management is based on a conception of science that few current scientists would defend. What's more, just as managers have become more preoccupied with the volatility of the business environment, scientists have also become preoccupied with the inherent volatility--the "chaos" and "complexity"--of nature. They are developing new rules for complex behavior in physical systems that have intriguing parallels to the kind of organizational behaviors companies are trying to encourage. In fact, science, long esteemed by business as a source of technological innovation, may ultimately prove of greatest value to managers as a source of something else: useful ways of looking at the world.     

Is momentum a self-fulfilling prophecy?

The author shows in a simple framework that momentum trading can exist in equilibrium and that momentum trading is profitable. A property of the model is that the relation between risk, reward, and the intensity of momentum trading provides a natural limit to the amount of momentum trading that will exist in equilibrium. Properties of the model fit the empirics well. First, the model captures in a parsimonious manner both short-term overreaction and long-term reversals. Second, it predicts that momentum and long-term reversals should be observed in any market where there is noise. Thus, the model gives theoretical support to the empirical evidence that these anomalies are not artifacts of data snooping and to the extant empirical evidence that these anomalies are pervasive. Momentum traders observe noise shocks and trade on it as information. This trading incorporates a predictive role to the noise. That is, if agents believe a past price change to be informative of future price changes and act on this belief, it will be true and trading on this belief will be profitable. Thus, momentum trading is a self-fulfilling action.     

Is there an Olympic gold medal rush in the stock market?

Investor sentiment and attention are often linked to the same non-economic events making it difficult to understand why and how asset prices are affected. We disentangle these two potential drivers of investment behaviour by analysing a new data-set of medals for the major participating countries and sponsor firms over four Summer Olympic Games. Our results show that trading volume and volatility are substantially reduced following Olympic success although returns appear to be largely unaffected. Analysis of data from online search volumes and surveys measuring investor sentiment also suggests that the market impact of the Olympics is linked to changes in attention.     

Is Germany a model for managers?

Most American managers have a hard time making sense of Germany. The country has a fraction of the resources and less than one-third the population of the United States. Labor costs are substantially higher, paid vacations are at least three times as long, and strong unions are deeply involved at all levels of business, from the local plant to the corporate boardroom. Yet German companies manage to produce internationally competitive products in key manufacturing sectors, making Germany the greatest competitive threat to the United States after Japan. The seemingly paradoxical nature of the German economy typically evokes one of two diametrically opposed responses. The first is to celebrate the German economy as a "model" worth emulating--indeed, as the answer to declining U.S. competitiveness. The alternative, more skeptical response is to question Germany's staying power in a new, more competitive global economy. According to Kirsten Wever and Christopher Allen, the problem with both points of view is that they miss the forest for the trees. Observers are so preoccupied with praising--or blaming--individual components of the German economy that they fail to see the dynamic logic that ties these components together into a coherent system. In their review of recent research on the German business system, Wever and Allen argue that managers can learn an important lesson from Germany. In the global economy, competition isn't just between companies but between entire socioeconomic systems. Germany's ability to design a cohesive economic and social system that adapts continuously to changing requirements goes a long way toward explaining that country's competitive success.     

Is beta still alive? Conclusive evidence from the Swiss stock market

Recent evidence from Fama and French (1992, 1996) and others shows that betas and returns are not related empirically. They interpret this as evidence against the validity of the capital asset pricing model and conclude that the beta is not a good measure of risk. This paper claims that usual tests do not leave much opportunity for beta to appear as a useful variable capable of explaining returns, because tests are often performed in periods where the average realized market excess return is not significantly different from zero. In order to assess the usefulness of beta, an alternative approach that dissociates results obtained in periods where the realized market excess is positive from those where it is negative is proposed. These new tests are then applied to a representative sample of the Swiss stock market over the period 1983–1991. The different results unambiguously support the fact that beta is a good measure of risk, because beta is strongly related to the cross-section of realized returns. These results also confirm that there are no arbitrage opportunities on this market.     

Is the Term Premium a Risk Premium?

This paper explores whether excess holding period returns on long vis-a-vis short-term securities behave in a manner that is consistent with (1) market efficiency, (2) the time-varying-term-premium variant of the expectations hypothesis, and (3) theories of the term premium that view it as a reward for risk bearing. Both traditional and modern theories of the term premium imply that it should evolve fairly slowly over time as attitudes toward risk and/or perceived covariances with wealth or consumption change. This implies that this period's term premium should have some predictive ability for next period's. However, we find that this quarter's ex-post term premium has zero predictive ability. For monthly rates and returns, the evidence is less clear cut, but again the implied term premia do not behave in a manner consistent with existing theories.