Flight-to-Safety and the Risk-Return Trade-Off: European Evidence
16 Pages Posted: 7 Nov 2017 Last revised: 4 Sep 2019
Date Written: November 22, 2018
This paper investigates flight-to-safety from stocks to bonds in six European markets. We use quantile regressions to identify flight-to-safety episodes. The conditional risk-return trade-off on the stock markets is negative. Flight-to-safety episodes strengthen the negative trade-off. The effects of flight-to-safety episodes on the trade-off are qualitatively similar for own country flight-to-safety episodes, for flight from own country stock market to the US bond market, and for US flight-to-safety episodes. The strength of the trade-off is strongest for US flight-to-safety episodes. Flight-from-safety has the opposite effect on the trade-off.
Keywords: Flight-to-Safety; Risk-Return Trade-Off; European Markets; Stock Market; Bond Market
JEL Classification: C58, G11, G15
Suggested Citation: Suggested Citation