Flights and Contagion - an Empirical Analysis of Stock-Bond Correlations
27 Pages Posted: 2 Mar 2006 Last revised: 14 Jul 2009
Date Written: July 2008
Abstract
This paper analyzes the existence of flights from stocks to bonds and vice versa. We propose a definition and a test for flight-to-quality, flight-from-quality and cross-asset contagion and examine their characteristics and effects for the financial system. The empirical analysis for eight developed countries including the US, the UK, Germany and Japan shows that flights exist and are a common feature in many crises episodes. Our findings also reveal that flights are not merely country-specific events but occur simultaneously across countries. This indicates that there is a link between the occurrence of flights and cross-country contagion. Moreover, we show that flights enhance the resiliency of the financial markets by providing diversification benefits in times when they are needed most.
Keywords: flight-to-quality, flight-from-quality, cross-asset contagion, cross-country contagion, multivariate GARCH, panel regression
JEL Classification: F36, F37, G11, G14, G15
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Conditional Volatility, Skewness and Kurtosis: Existence and Persistence
By Michael Rockinger and Eric Jondeau
-
Conditional Volatility, Skewness, and Kurtosis: Existence and Persistence
By Eric Jondeau and Michael Rockinger
-
Is Gold a Hedge or a Safe Haven? an Analysis of Stocks, Bonds and Gold
By Dirk G. Baur and Brian M. Lucey
-
Y2k Fears and Safe Haven Trading of the U.S. Dollar
By Aditya Kaul and Stephen G. Sapp
-
Psychological Barriers in Gold Prices?
By Raj Aggarwal and Brian M. Lucey
-
Price Clustering and Natural Resistance Points in the Dutch Stock Market: A Natural Experiment
-
International Portfolio Formation, Skewness and the Role of Gold
By Brian M. Lucey and Edel Tully