Flights to Safety
72 Pages Posted: 19 Oct 2013 Last revised: 16 Jan 2019
Date Written: June 27, 2018
We identify flight-to-safety (FTS) days for 23 countries using only stock and bond returns and a model averaging approach. FTS days comprise less than 2% of the sample, and are associated with a 2.7% average bond-equity return differential and significant flows out of equity funds and into government bond and money market funds. FTS represents flights to both quality and liquidity in international equity markets, but mainly a flight-to-quality in the US corporate bond market. Emerging markets, endowment funds, and hedge funds all perform poorly during FTS, while hedge funds appear to vary their systematic exposures prior to a FTS.
Keywords: Flight-to-Safety, Flight-to-Quality, Stock-Bond Return Correlation, Liquidity, Hedge Funds
JEL Classification: G11, G12, G14, E43, E44
Suggested Citation: Suggested Citation