Working Paper: CEPR ID: DP17745
Authors: Lu Zhang; Christian Wolff
Abstract: Extensive research on safe-haven assets has been conducted in the literature. An important finding is that safe-haven assets are frequently used by institutional investors, such as pension funds and investment banks, to ride out high volatility. However, the issue of whether individual investors can benefit from it during a financial crisis has not been adequately addressed. Using the case of sanctioned Russia, we attempt to study whether Bitcoin as a decentralized asset can play a more useful role than gold to protect individual investors when the majority of safe-haven assets are restricted from transactions. Our main results show that both assets exhibit intraday weak safe-haven properties against the ruble. However, gold saw a waning trend compared with its historical performance, whereas Bitcoin’s capability increased during this period. Further sentiment analysis demonstrates Russian investors’ positive attitudes regarding Bitcoin boosting its price in response to the ruble’s depreciation. The return on gold is more likely to be impacted by international investors who are concerned about global uncertainties
Keywords: Hedging performance; Dynamic conditional correlation; Sentiment analysis
JEL Codes: G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| weakened authority-based financial system during the crisis (F65) | reassessment of safe haven assets (F31) |
| Russian investors' positive sentiment towards bitcoin (G13) | bitcoin's return (E42) |
| international investors' sentiment (F21) | gold's return (Y60) |
| bitcoin's return (E42) | bitcoin's status as a weak safe haven (E42) |
| gold's return (Y60) | gold's status as a safe haven (F31) |