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Safe Haven Assets and Investor Behaviour under Uncertainty

Dirk G. Baur, University of Technology, Sydney
Thomas K.J. McDermott, Trinity College Dublin

IIIS Discussion Paper No. 392

We study two different safe haven assets, US government bonds and gold, and examine how the price changes of these assets can be used to infer investor behaviour under uncertainty. We find that investors are ambiguity-averse, that is they buy gold when faced with extreme uncertainty about the state of the economy or the financial system and when they receive ambiguous signals. In contrast, investors buy US government bonds when faced with extreme but unambiguous signals. We also show that there is overreaction to ambiguous signals.

Key words: uncertainty, financial crisis, safe haven, gold, bonds, Ellsberg decision rule, black swan event
JEL classification: D03, D81, G01, G11








Last updated 28 August 2014 by IIIS (Email).