What Drives Flight to Quality?

43 Pages Posted: 23 Oct 2018

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: November 2018

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 to identify the driving variables using a conditional copula model. Analysing 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: Conditional copula, Dependence structure, Flight to quality, Macroeconomic factors

Suggested Citation

Opitz, Sebastian and Szimayer, Alexander, What Drives Flight to Quality? (November 2018). Accounting & Finance, Vol. 58, pp. 529-571, 2018, Available at SSRN: https://ssrn.com/abstract=3271211 or http://dx.doi.org/10.1111/acfi.12315

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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