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Flights to Safety

Listed author(s):
  • Lieven Baele

    ()

    (CentER, Tilburg University
    Netspar, Tilburg University)

  • Geert Bekaert

    ()

    (Graduate School of Business, Columbia University
    NBER)

  • Koen Inghelbrecht

    ()

    (Department Financial Economics, Ghent University
    Finance Department, University College Ghent)

  • Min Wei

    ()

    (Federal Reserve Board of Governors, Division of Monetary Affairs, Washington)

Despite a large and growing theoretical literature on flights to safety, there does not appear to exist an empirical characterization of flight-to-safety (FTS) episodes. Using only data on bond and stock returns, we identify and characterize flight to safety episodes for 23 countries. On average, FTS episodes comprise less than 5% of the sample, and bond returns exceed equity returns 2 to 3%. The majority of FTS events are country-specific not global. FTS episodes coincide with increases in the VIX, decreases in consumer sentiment indicators in the US, Germany and the OECD and appreciations of the yen and the Swiss franc. The financial, basic materials and industrial industries under-perform in FTS episodes, but the telecom industry outperforms. Both money market instruments and corporate bonds face abnormal negative returns in FTS episodes. Most commodity prices decrease sharply during FTS episodes, whereas the gold price measured in dollars increases slightly. Both economic growth and inflation decline right after and up to a year following a FTS spell.

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File URL: https://www.nbb.be/doc/oc/repec/reswpp/wp230en.pdf
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Paper provided by National Bank of Belgium in its series Working Paper Research with number 230.

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Length: 57 pages
Date of creation: Oct 2012
Handle: RePEc:nbb:reswpp:201210-230
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