【Abstract】

We examine whether the renminbi (RMB) is a safe-haven currency in terms of its effectiveness in hedging financial stress for global equity investors. The coskewness of the RMB (the covariance between the RMB premium and equity volatility) is mostly negative, implying that the RMB is not a good hedge in times of market volatility. Moreover, the positive cokurtosis of the RMB (the covariance between the RMB premium and equity skewness) implies that the RMB is unable to hedge against stock market crashes. Neither the coskewness nor the cokurtosis of the RMB is priced, suggesting that equity investors with skewness and kurtosis preferences would not use the RMB to hedge against financial stress. Therefore, the RMB is not yet a safe-haven currency.

【Keywords】

currency hedging, conditional coskewness, conditional cokurtosis, idiosyncratic skewness, international asset pricing

【Authors】

Cheng Xin, Institute of Chinese Financial Studies, Southwestern University of Finance and Economics

Chen Hongyi, Hong Kong Institute for Monetary and Financial Research, One Pacific Place

Zhou Yinggang, Senior Research Fellow of IMI, Center for Macroeconomic Research & Department of Finance at School of Economics, and Wang Yanan Institute for Studies in Economics, Xiamen University