What Really Happens During Flight to Safety: Evidence from Real Estate Markets

36 Pages Posted: 25 May 2018

See all articles by Walter Boudry

Walter Boudry

Cornell University

Robert A. Connolly

University of North Carolina (UNC) at Chapel Hill - Finance Area

Eva Steiner

Cornell SC Johnson College of Business

Date Written: May 15, 2018

Abstract

Flight to safety (FTS) affects the markets for risky assets such as stocks, corporate bonds, and commodities. Yet, little is known about the effects on commercial real estate. We show that REITs offer a partial hedge against FTS, with daily total returns being less sensitive to FTS than many other industries and measures of REIT liquidity actually improving on FTS days. However, a cluster of FTS days signals a decline in economic fundamentals in the long run. We find that the odds of a drop in REIT quarterly revenue increase by 15% after an FTS cluster, ceteris paribus. This effect persists for up to four quarters. We also find that commercial real estate price appreciation is all but wiped out over up to four quarters following an FTS cluster. Our findings benefit investors by providing estimates of the short-term return and liquidity response of REITs to FTS episodes, and by documenting long-term effects on REIT revenues and real asset values.

Keywords: Flight to Safety, Macro Finance, Capital Markets, Real Estate, Asset Pricing

Suggested Citation

Boudry, Walter and Connolly, Robert A. and Steiner, Eva Maria, What Really Happens During Flight to Safety: Evidence from Real Estate Markets (May 15, 2018). Available at SSRN: https://ssrn.com/abstract=3178922 or http://dx.doi.org/10.2139/ssrn.3178922

Walter Boudry

Cornell University ( email )

Ithaca, NY 14853
United States

Robert A. Connolly

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Campus Box 3490
Chapel Hill, NC 27599-3490
United States
919-962-0053 (Phone)
919-962-5539 (Fax)

HOME PAGE: http://itr.bschool.unc.edu/faculty/connolly

Eva Maria Steiner (Contact Author)

Cornell SC Johnson College of Business ( email )

465B Statler Hall
Ithaca, NY 14853
United States

HOME PAGE: http://https://sha.cornell.edu/faculty-research/faculty/ems457/

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