Discussion of “The Swiss Franc Exchange Rate and Deviations from UIP: Global versus

The Swiss franc’s persistent deviation from uncovered interest rate parity (UIP) and its link to possible safe haven characteristics of the franc have been well doc-umented.1 In this paper, Hoffmann and Suter (HS) provide a novel re-examina-tion of this issue, by taking “global ” and “domestic ” discount factors – derived within a capital asset pricing model (CAPM) framework – and applying them in a bilateral regression setting. From their work, the authors conclude that the Swiss franc is a safe haven against the U.S. dollar but not against the Euro. Their approach and results raise a number of interesting questions. Does co-movement of individual bilateral excess currency returns and these external CAPM discount factors indicate safe haven behavior? At first blush, it is not clear that this is true. Ranaldo and Söderlind (RS), define a safe haven currency as one that appreciates when: (i) the stock market goes down; (ii) bond prices rise; or (iii) foreign exchange volatility goes up. These are the “stress” events generally recognized by the financial press when safe haven behavior is highlighted. In contrast, HS’s definition relies on exposure to the global com