The tail behavior of safe haven currencies: A cross-quantilogram analysis

This paper investigates the tail behavior of safe haven currencies using high-frequency data during both financially good and bad times over the period 2004-2017. The analysis uses the cross-quantilogram, recently developed by Han et al. (2016), to measure quantile dependence between currencies and foreign exchange (FX) volatility, and equity and bond markets. We find that the Swiss franc, the euro, and the Japanese yen are more likely to largely appreciate when FX volatility and the US Treasury bond yields increase rapidly. However, a sharp decrease in US stock returns is associated with a significant appreciation of only the Japanese yen. In addition, the effects of different shocks on safe haven currencies are all asymmetric, indicating that investors are more responsive during periods of financial distress. We also document that these currencies respond strongly over some lags in the tails than in the midrange during market stress. Our findings show that the Japanese yen is the strongest safe haven currency, followed by the Swiss franc, and the euro. (C) 2020 Elsevier B.V. All rights reserved.