This study aims to examine the hedge, diversifier and safe-haven properties of bonds against infectious disease-related equity market volatility (IDEMV), like COVID-19.
The authors apply wavelet coherence methodology on the daily data of IDEMV and bond market (US, UK, Japan, Switzerland, Canada, Australia, Sweden, China and Europe) indices from 1 January 2000 to 14 February 2021.
The results show no significant co-movement between these bond indices and IDEMV, thus confirming that they serve as a hedge against IDEMV. However, during the turbulent period like COVID-19, the authors find that the US, UK, Japan, Switzerland, Canada, Australia, Sweden, China and European bond markets act as safe-haven against IDEMV, whereas the UK, US, Japan and Canadian bond markets demonstrate an in-phase and positive co-movement with IDEMV during COVID-19, suggesting their role as a diversifier.
The study findings are important for investors and portfolio managers regarding risk management, portfolio diversification and investment strategies.
The authors contribute to the fast growing body of work on the financial impacts of COVID-19 as well as to ongoing consideration of whether a bond is a safe-haven investment.
