ABSTRACT
This chapter introduces the concept of safe assets. The notion of safe investments is depicted with its functions and attributes according to different ideas and classifications. Safe assets are low-risk investments, usually in the form of debt instruments, which guarantee a fixed value of money without the default risk of the issuer. There are three main sources of safe asset creation: central bank money, government debt and private market instruments. Safe assets are characterised by their low credit and market risk, high liquidity, and limited inflationary and idiosyncratic risk. A similar term, safe-haven assets, is also presented, and the main differences between safe assets and safe-haven assets are indicated. A safe-haven asset is an investment that can retain or increase in value during times of market crisis, making this short-lived phenomenon dependent on information and negatively correlated with other asset returns. The main types of safe-haven instruments are gold, reserve currencies, debt instruments, stocks and some cryptocurrencies like Bitcoin. Finally, the chapter presents several implications of safe-haven instruments for asset pricing theory, with a clear distinction between their safe-haven, diversifier and hedge functions in a portfolio.
