Investigating the optimal safe haven assets: A wavelet-based analysis of geopolitical risk index, breakpoints, and asset performance

Abstract

This study assesses the function of safe-haven assets amid geopolitical risks, employing the Wavelet method, structural break analysis, and causality testing. The findings indicate that gold (XAU) serves as the most stable safe-haven asset, exhibiting a significant response to GPR over an extended period. The DXY exhibits defensive characteristics; however, it is affected by macroeconomic factors. Platinum (XPT) and silver (XAG) exhibit correlation with GPR; however, they demonstrate greater volatility compared to gold. Bitcoin (BTC) and Ethereum (ETH) exclusively respond to GPR_plus, suggesting restricted safe-haven capabilities. Palladium (XPD) is primarily driven by industrial demand. Breakpoint analysis indicates that Bitcoin and Ethereum exhibit significant volatility, whereas the S&P 500 and WTI oil demonstrate pronounced reactions to macroeconomic shocks. Granger causality tests demonstrate that GPR has predictive capability for the prices of Ethereum and platinum, whereas the S&P 500 influences WTI and DXY. This study offers significant insights into portfolio diversification and risk management amid volatile geopolitical conditions