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Flight-to-quality in the stock–bond return relation: a regime-switching copula approach

Minoru Tachibana

Financial Markets and Portfolio Management, 2020, vol. 34, issue 4, No 3, 429-470

Abstract: Abstract This paper examines the existence, intensity and international dependence of flight-to-quality from stocks to government bonds. To this end, we develop a two-state regime-switching bivariate copula model and apply it to the domestic and cross-country stock–bond return pairs of six developed countries (France, Germany, Japan, Switzerland, the UK and the US) over the period 1999–2019. We find that US and UK government bonds have played a primary role of safe-haven assets during stock market downturns. The remaining government bond markets show the evidence of flight-to-quality, but its intensity is relatively weak. Further, we find that although flight-to-quality tends to occur simultaneously in multiple countries, the frequency of the joint occurrence varies across government bond markets.

Keywords: Flight-to-quality; Stock market; Government bond market; Regime-switching copula model (search for similar items in EconPapers)
JEL-codes: C58 G11 G15 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11408-020-00361-5

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