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What drives flight to quality?

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  • Sebastian Opitz
  • Alexander Szimayer

Abstract

The returns of equities and bonds tend to be positively correlated, but in extreme situations this relation reverses. Large negative equity returns co‐occur with large positive bond returns. This is potentially caused by investors reassessing their risk preferences and shifting their wealth to less risky asset classes, which is frequently termed flight to quality. We examine macroeconomic factors to identify the driving variables using a conditional copula model. Analysing quarterly data from 1952 to 2014, we find that the Treasury bill rate is the most significant driver. This insight is useful for asset allocation and risk management.

Suggested Citation

  • Sebastian Opitz & Alexander Szimayer, 2018. "What drives flight to quality?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(S1), pages 529-571, November.
    • Handle: RePEc:bla:acctfi:v:58:y:2018:i:s1:p:529-571
    DOI: 10.1111/acfi.12315
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    Cited by:

    1. Doaa Samy Sedeek & Khairy Elgiziry, 2020. "Flight to Quality Existence in the Egyptian Stock Market: An Analysis of Stock Market, Quality Stock and Treasury Bills," Accounting and Finance Research, Sciedu Press, vol. 9(2), pages 1-1, May.
    2. Helen Hui Huang & Yanjie Wang & Shunming Zhang, 2023. "Asset allocation, limited participation and flight‐to‐quality under ambiguity of correlation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4604-4626, October.
    3. Ponrajah, Jeremey & Ning, Cathy, 2023. "Stock–bond dependence and flight to/from quality," International Review of Financial Analysis, Elsevier, vol. 86(C).
    4. Sakthi Mahenthiran & Tom Gjerde & Berta Silva, 2020. "Stock Market Contagion during the Global Financial Crises: Evidence from the Chilean Stock Market," IJFS, MDPI, vol. 8(2), pages 1-22, April.

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