Advanced Search
MyIDEAS: Login

Flight-to-quality or Contagion? An EmpiricalAnalysis of Stock-bond correlations

Contents:

Author Info

  • Dirk Baur
  • Brian M. Lucey

Abstract

This paper analyzes the existence of flight-to-quality from stocks to bonds and contagion between the two asset classes. Flight-to-quality is present if correlations between stocks and bonds strongly decrease in falling stock markets since this constitutes a movement of the asset classes in opposite directions. A movement in the same direction characterized by strongly increasing correlations in falling stock markets implies contagion across asset classes. We estimate dynamic conditional correlations and analyze normal and extreme changes of these correlations through time without an a priori specification of any crisis period. Daily MSCI stock and government bond returns are analyzed for a selection of European countries and the US. Our findings show that the correlation between the asset classes is characterized by large fluctuations and negative on average for the whole sample period. Extreme negative and positive correlation changes explained with flight-to-quality and contagion are relatively frequent phenomena. Examples of flight-to-quality are in the Asian and Russian crisis 1997 and 1998 and contagion is found after September 11. Controlling for the regime of correlations further shows that stock market volatility contributes to flight-to-quality and bond volatility to contagion.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.tcd.ie/iiis/documents/discussion/pdfs/iiisdp122.pdf
Download Restriction: no

Bibliographic Info

Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp122.

as in new window
Length:
Date of creation: 05 Apr 2006
Date of revision:
Handle: RePEc:iis:dispap:iiisdp122

Note: Length:
Contact details of provider:
Postal: 01
Phone: 00 353 1 896 3888
Fax: 00 353 1 896 3939
Web page: http://www.tcd.ie/iiis/
More information through EDIRC

Related research

Keywords: flight-to-quality; contagion; multivariate GARCH;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Szafarz, Ariane & Chapelle, Ariane & Brière, Marie, 2012. "No contagion, only globalization and flight to quality," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/7746, Université Paris-Dauphine.
  2. Angelos Kanas, 2009. "The relation between the equity risk premium and the bond maturity premium in the UK: 1900–2006," Journal of Economics and Finance, Springer, vol. 33(2), pages 111-127, April.
  3. Giovanni Pittaluga & Elena Seghezza, 2012. "Euro vs Dollar: An Improbable Threat," Open Economies Review, Springer, vol. 23(1), pages 89-108, February.
  4. Smith, Kenneth L. & Swanson, Peggy E., 2008. "The dynamics among G7 government bond and equity markets and the implications for international capital market diversification," Research in International Business and Finance, Elsevier, vol. 22(2), pages 222-245, June.
  5. Venus Khim-Sen Liew & Zhuo Qiao & Wing-keung Wong, 2010. "Linearity and stationarity of G7 government bond returns," Economics Bulletin, AccessEcon, vol. 30(4), pages 2642-2655.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iis:dispap:iiisdp122

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Eva Mateo).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.