What Drives Flight to Quality?

77 Pages Posted: 26 Sep 2015 Last revised: 17 Aug 2017

See all articles by Sebastian Opitz

Sebastian Opitz

University of Hamburg

Alexander Szimayer

University of Hamburg - Faculty of Economics and Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: August 16, 2017

Abstract

The returns of equities and bonds tend to be positively correlated, but in extreme situations this relation reverses. Large negative equity returns co-occur with large positive bond returns. This is potentially caused by investors reassessing their risk preferences and shifting their wealth to less risky asset classes which is frequently termed flight to quality. We examine macroeconomic factors in order to identify the driving variables using a conditional copula model. Analyzing quarterly data from 1952 to 2014 we find that the treasury bill rate is the most significant driver. This insight is useful for asset allocation and risk management.

Keywords: Dependence structure, conditional copula, flight to quality, macroeconomic factors

JEL Classification: G12, C58, E44

Suggested Citation

Opitz, Sebastian and Szimayer, Alexander, What Drives Flight to Quality? (August 16, 2017). Available at SSRN: https://ssrn.com/abstract=2665193 or http://dx.doi.org/10.2139/ssrn.2665193

Sebastian Opitz (Contact Author)

University of Hamburg ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

Alexander Szimayer

University of Hamburg - Faculty of Economics and Business Administration ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

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