What Triggers Flights to Safety?

60 Pages Posted: 16 Jul 2023

See all articles by Lieven Baele

Lieven Baele

Tilburg University - Department of Finance

Frank De Jong

Tilburg University - Department of Finance

Giovanni Trebbi

Tilburg University - Department of Finance

Date Written: July 7, 2023

Abstract

We apply causality extraction (CE) algorithms on more than 36,000 articles from 2 major financial newspapers (WSJ, FT) and three major newswires (DJ, MNI Market News, Reuters) over the extended period 1980-2020 to shed light on the fundamental triggers of flights to safety. Our CE algorithm searches for sentences that causally-relate flight-to-safety terms to a “cause”, or candidate FTS trigger. Our method identifies nearly 3,000 unique triggers of FTS, which we subsequently allocate using a dictionary-based method to nine economically-motivated primitive categories. While some primitives such as “Funding Liquidity”, “Financial Intermediaries”, or “Pandemic” are only mentioned during specific FTS spells, others such as Political, Geopolitical, Macro, and terms broadly associated with Risk Aversion, Sentiment, and Uncertainty are more generally mentioned as potential triggers of FTS. We additionally show that causal FTS articles are associated with larger market responses (compared to days with noncausal FTS articles), especially if they refer to current (instead of future) FTS events.

Keywords: Flight-to-Safety, Causality Extraction, Textual Analysis

JEL Classification: G11, G12, G14, E43, E44

Suggested Citation

Baele, Lieven and De Jong, Frank and Trebbi, Giovanni, What Triggers Flights to Safety? (July 7, 2023). Available at SSRN: https://ssrn.com/abstract=4503287 or http://dx.doi.org/10.2139/ssrn.4503287

Lieven Baele

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 3257 (Phone)
+31 13 466 2875 (Fax)

Frank De Jong

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Giovanni Trebbi (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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