Flights to Safety

Lieven Baele (), Geert Bekaert, Koen Inghelbrecht and Min Wei

No 2014-46, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Using only daily data on bond and stock returns, we identify and characterize flight to safety (FTS) episodes for 23 countries. On average, FTS days comprise less than 3% of the sample, and bond returns exceed equity returns by 2.5 to 4%. The majority of FTS events are country-specific not global. FTS episodes coincide with increases in the VIX and the Ted spread, decreases in consumer sentiment indicators and appreciations of the Yen, Swiss franc, and US dollar. The financial, basic materials and industrial industries under-perform in FTS episodes, but the telecom industry outperforms. Money market instruments, corporate bonds, and commodity prices (with the exception of metals, including gold) face abnormal negative returns in FTS episodes. Hedge funds, especially those belonging to the \"event-driven\" styles, display negative FTS betas, after controlling for standard risk factors. Liquidity deteriorates on FTS days both in the bond and equity markets. Both economic growth and inflation decline right after and up to a year following a FTS spell.

Keywords: Flight-to-safety; flight-to-quality; stock-bond return correlation; liquidity; hedge funds (search for similar items in EconPapers)
JEL-codes: E43 E44 G11 G12 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2014-06-05
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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http://www.federalreserve.gov/pubs/feds/2014/201446/201446pap.pdf Full text (application/pdf)

Related works:
Journal Article: Flights to Safety (2020)
Working Paper: FLIGHTS TO SAFETY (2019)
Working Paper: Flights to Safety (2013)
Working Paper: Flights to Safety (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2014-46

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