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Typological Classification, Diagnostics, and Measurement of Flights-to-Quality

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  • Mariya Gubareva
  • Maria Rosa Borges

Abstract

This paper proposes a total return-based framework to study flight-to-quality phenomenon of fixed-income securities. It consists of three elements: (i) the general definition of event; (ii) the typological classification of the phenomena to be able associate them with the phases of business cycle; (iii) automated technique to diagnose the time frames and to measure the impact of flight-to-quality on debt instruments. The proposed framework is applied to analyse capital movements from Emerging Markets public debt to the U.S. Treasuries and vice versa within the period 1998-2010. The results show that different phases of business cycles and GDP rates behaviours, including turning points, could be associated with flights-to-quality of different types and nature.

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Bibliographic Info

Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2013/15.

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Date of creation: Jul 2013
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Handle: RePEc:ise:isegwp:wp152013

Contact details of provider:
Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

Related research

Keywords: flight-to-quality; financial crisis; emerging market debt; U.S. treasury bonds.;

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References

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  1. Goyenko, Ruslan Y. & Ukhov, Andrey D., 2009. "Stock and Bond Market Liquidity: A Long-Run Empirical Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(01), pages 189-212, February.
  2. Randi Næs & Johannes A. Skjeltorp & Bernt Arne Ødegaard, 2011. "Stock Market Liquidity and the Business Cycle," Journal of Finance, American Finance Association, vol. 66(1), pages 139-176, 02.
  3. Marie Briere & Ariane Chapelle & Ariane Szafarz, 2012. "No Contagion, only Globalization and Flight to Quality," ULB Institutional Repository 2013/149092, ULB -- Universite Libre de Bruxelles.
  4. A. Javier Hamann & Irina Bunda & Subir Lall, 2010. "Correlations in Emerging Market Bonds," IMF Working Papers 10/6, International Monetary Fund.
  5. Zhigu He & Arvind Krishnamurthy, 2012. "A Model of Capital and Crises," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 735-777.
  6. Rodrigo Alfaro & Helmut Franken & Carlos García & Alejandro Jara, 2003. "Bank Lending Channel and the Monetary Transmission Mechanism: the Case of Chile," Working Papers Central Bank of Chile 223, Central Bank of Chile.
  7. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
  8. Franz Fuerst & Pat McAllister & Petros Sivitanides, 2011. "Flight to Quality? An Investigation of the Attributes of Sold Properties in Hot and Cold Markets," Real Estate & Planning Working Papers rep-wp2011-04, Henley Business School, Reading University.
  9. Qin Lei & Xuewu Wang, 2012. "Flight to liquidity due to heterogeneity in investment horizon," China Finance Review International, Emerald Group Publishing, vol. 2(2), pages 316-350, August.
  10. A. Can Inci & H.C. Li & Joseph McCarthy, 2011. "Measuring flight to quality: a local correlation analysis," Review of Accounting and Finance, Emerald Group Publishing, vol. 10(1), pages 69 - 87, February.
  11. Randi Næs & Johannes A. Skjeltorp & Bernt Arne Ødegard, 2008. "Liquidity and the business cycle," Working Paper 2008/11, Norges Bank.
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