How did major global asset classes respond to Silicon Valley Bank failure?

Abstract

We explore the impact of Silicon Valley Bank failure on 11 major global assets using event study approach. The findings reveal that except for Gold and US Treasury Bills, there is no significant response from other asset classes on the event day. Gold is perceived as a safe haven by investors on the event day. The investors shredded investments in US Treasury Bills on event day and post event, an outcome of uncertainty shrouding monetary policy stance of Federal Reserve in the aftermath of Silicon Valley Bank failure. We also estimated Net Total Directional Connectedness based on a TVP-VAR model for the sampled assets. The results remained robust to this approach. Overall, we find little evidence of reputation contagion or spillover from the failure of SVB to other asset classes. In respect of implications, it can be inferred that the diversified portfolios, precious metals, USD, cryptocurrencies, ESG and Clean Energy assets may be employed to diversify the portfolios during crisis periods. In addition, US monetary authorities should endeavor to reduce market uncertainty. Finally, Crude Oil appears to be vulnerable to adverse market conditions and may be included in the portfolios with caution during looming crises periods.

keywords: Safe Haven, Spillover, Cryptocurrencies, Diversified Portfolios