Flights to Safety

Posted: 9 Jul 2021

See all articles by Lieven Baele

Lieven Baele

affiliation not provided to SSRN

Geert Bekaert

Columbia University - Columbia Business School, Finance

Koen Inghelbrecht

affiliation not provided to SSRN

Min Wei

Board of Governors of the Federal Reserve System

Date Written: June, 2014

Abstract

Using only daily data on bond and stock returns, we identify and characterize flight to safety (FTS) episodes for 23 countries. On average, FTS days comprise less than 3% of the sample, and bond returns exceed equity returns by 2.5 to 4%. The majority of FTS events are country-specific not global. FTS episodes coincide with increases in the VIX and the Ted spread, decreases in consumer sentiment indicators and appreciations of the Yen, Swiss franc, and US dollar. The financial, basic materials and industrial industries under-perform in FTS episodes, but the telecom industry outperforms. Money market instruments, corporate bonds, and commodity prices (with the exception of metals, including gold) face abnormal negative returns in FTS episodes. Hedge funds, especially those belonging to the \"event-driven\" styles, display negative FTS betas, after controlling for standard risk factors. Liquidity deteriorates on FTS days both in the bond and equity markets. Both economic growth and inflation decline right after and up to a year following a FTS spell.

JEL Classification: E43, E44, G11, G12

Suggested Citation

Baele, Lieven and Bekaert, Geert and Inghelbrecht, Koen and Wei, Min, Flights to Safety (June, 2014). FEDS Working Paper No. 2014-46, Available at SSRN: https://ssrn.com/abstract=3882329

Lieven Baele (Contact Author)

affiliation not provided to SSRN

No Address Available

Geert Bekaert

Columbia University - Columbia Business School, Finance ( email )

NY
United States

Koen Inghelbrecht

affiliation not provided to SSRN

No Address Available

Min Wei

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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