Working Paper: NBER ID: w19095
Authors: Lieven Baele; Geert Bekaert; Koen Inghelbrecht; Min Wei
Abstract: We identify flight-to-safety (FTS) days for 23 countries using only stock and bond returns and a model averaging approach. FTS days comprise less than 2% of the sample, and are associated with a 2.7% average bond-equity return differential and significant flows out of equity funds and into government bond and money market funds. FTS represents flights to both quality and liquidity in international equity markets, but mainly a flight-to-quality in the US corporate bond market. Emerging markets, endowment funds, and hedge funds all perform poorly during FTS, while hedge funds appear to vary their systematic exposures prior to a FTS.
Keywords: flight-to-safety; financial markets; asset returns; mutual fund flows
JEL Codes: E43; E44; G11; G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FTS episodes (Y60) | significant increase in flows out of equity funds and into government bond and money market funds (F21) |
| FTS episodes (Y60) | poor performance of emerging markets and hedge funds (P17) |
| FTS events characterized as flights to quality rather than liquidity (E44) | differential impacts in U.S. corporate bonds and equities (G12) |
| FTS episodes identified as days with significant bond-equity return differential (G12) | significant bond-equity return differential (G12) |