The roles of catastrophe (CAT) bonds: diversifier, hedge, or safe haven?

Abstract

This research investigates the role of Catastrophe (CAT) Bonds as diversification tools, hedges, and safe havens in global financial markets, with a focus on their behavior during the global financial crisis and the Covid-19 crisis. The study reveals that CAT bonds, recognized as a valuable asset class for their unique structure and ability to transfer catastrophic risks, have gained prominence among institutional investors. By examining the diversification benefits of CAT bonds in relation to traditional assets and analyzing their performance in crisis and non-crisis periods, the research highlights CAT bonds as effective tools for risk management and portfolio diversification. The findings demonstrate CAT bonds' ability to offer stability and protection in volatile market conditions, providing valuable insights for portfolio managers and investors. Additionally, the study explores the role of CAT bonds in different market conditions, contributing to the understanding of their potential in portfolio management and risk mitigation across various economic landscapes