Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144442
Authors: 
Baele, Lieven
Bekaert, Geert
Inghelbrecht, Koen
Wei, Min
Year of Publication: 
2012
Series/Report no.: 
Working Paper Research 230
Abstract: 
Despite a large and growing theoretical literature on flights to safety, there does not appear to exist an empirical characterization of flight-to-safety (FTS) episodes. Using only data on bond and stock returns, we identify and characterize flight to safety episodes for 23 countries. On average, FTS episodes comprise less than 5% of the sample, and bond returns exceed equity returns 2 to 3%. The majority of FTS events are country-specific not global. FTS episodes coincide with increases in the VIX, decreases in consumer sentiment indicators in the US, Germany and the OECD and appreciations of the yen and the Swiss franc. The financial, basic materials and industrial industries under-perform in FTS episodes, but the telecom industry outperforms. Both money market instruments and corporate bonds face abnormal negative returns in FTS episodes. Most commodity prices decrease sharply during FTS episodes, whereas the gold price measured in dollars increases slightly. Both economic growth and inflation decline right after and up to a year following a FTS spell.
Subjects: 
Stock-Bond Return Correlation
Liquidity
Flight-to-Safety
JEL: 
G11
G12
G14
E43
E44
Document Type: 
Working Paper

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