Typology for flight-to-quality episodes and downside risk measurement

Mariya Gubareva () and Maria Borges ()

Applied Economics, 2016, vol. 48, issue 10, 835-853

Abstract: We propose a total return-based framework to measure downside risk associated with phenomenon of capital outflows from riskier to safer financial markets. The proposed method consists of three elements: (i) the general definition of the flight-to-quality (FtQ) phenomenon, (ii) the typological classification of the flight-to-quality occurrences for associating them with the phases of the business cycle and (iii) the automated technique to diagnose the time frames and to measure the impact of flight-to-quality on financial instruments. The proposed framework is applied to analyse the global-scale capital inflows/outflows from emerging markets public debt to the US Treasuries and vice versa. The results show that different phases of business cycles and GDP growth rates, including turning points, could be associated with flights-to-quality of different types and causality origins. Addressing downside risk crystallizations in flight-to-quality occurrences, new perspectives of integrated interest rate risk and credit risk management are discussed. For strengthening financial stability, we suggest the use of flight-to-quality windows as scenarios for stress testing, both for banks and financial institutions.

Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2015.1088143 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:48:y:2016:i:10:p:835-853

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2015.1088143

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().