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| Type | Bachelor's Thesis |
| Scope | Discipline-based scholarship |
| Title | Fundamental Properties of Countries with Safe Haven Currencies |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 37 |
| Date | 2018 |
| Zusammenfassung | This thesis studies the influence of governance and economic indicators of countries on the safe haven status of their currencies. In order to understand the safe haven phenomenon, first, current state of research is described and results are summarized. Through this thesis a safe haven currency is defined as a currency which on average generates excess returns in periods of financial downturns. The relationship to other assets in times of economic prosperity is irrelevant according to this definition. Based on recent literature on safe haven assets and safe haven currencies in particular, indicators which have the potential to explain excess returns of currencies under severe market conditions are defined. A multiple linear regression model tests whether the defined variables are able to explain the excess returns of currencies which are discussed as possible safe haven assets. The model tests the influence of independent and control variables on the dependent variable, where excess returns of a currency is the dependent variable, stock market returns and the risk-free rate are control variables and inflation, economy size, economic interconnectivity as well as governance represent independent variables. Furthermore, financial openness is discussed as a potential independent variable, but is not considered in the model. The underlying assumption of the analysis is that the relationship between excess returns and the defined variables changes regarding to the overall market trend. To compromise for these structural breaks the thesis uses a unique way to include data points into the analyzed dataset. For the period between January 1996 and January 2018 monthly data is sorted from the most volatile trading months to the least volatile trading months. For the 30 percent of the most volatile months the evolution of the stock market is checked. If a month, jointly, has a lower stock market standing than the previous month and is one of the 30 percent most volatile months for the analyzed time period, the data for the month is included into the dataset. This indicates that the periods in between of the defined distressed data points are excluded from the dataset. In this way the thesis tries to explain the appreciation of the Swiss franc, the Japanese yen, the Pound sterling and the Swedish krona against the U.S. dollar which is considered as the home currency. The results for the Swiss franc and the Japanese yen are significant and explain a substantial portion of the variation in the model. For the Pound sterling and the Swedish krona the results are less significant to not significant at all. These results reflect the findings of recent literature indicating that the Swiss franc and the Japanese yen are the strongest safe haven currencies. Nevertheless, further research is necessary to understand the safe haven phenomenon in more detail. |
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