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Flight-to-quality between global stock and bond markets in the COVID era

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  • Papadamou, Stephanos
  • Fassas, Athanasios P.
  • Kenourgios, Dimitris
  • Dimitriou, Dimitrios

Abstract

We investigate the impact of the recent COVID-19 pandemic on the time-varying correlation between stock and bond returns. Using daily data on bond and stock returns for ten countries, covering Europe, Asia, US and Australia regions, we identify flight-to-quality episodes during the COVID-19 global pandemic crisis employing both a panel data specification and a wavelet analysis. Our empirical results demonstrate that flights occur simultaneously across countries and are not country-specific events. This finding suggests that the two largest asset classes offered diversification to investors during the recent crisis, when they actually needed it the most.

Suggested Citation

  • Papadamou, Stephanos & Fassas, Athanasios P. & Kenourgios, Dimitris & Dimitriou, Dimitrios, 2021. "Flight-to-quality between global stock and bond markets in the COVID era," Finance Research Letters, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612320316664
    DOI: 10.1016/j.frl.2020.101852
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    More about this item

    Keywords

    COVID-19 pandemic; Flight-to-quality; Stock-bond returns correlation; Google trends; Wavelets; Panel regression JEL codes C33; G12; G14;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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