Flight to Safety from European Stock Markets

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This paper investigates flight-to-safety from stocks to bonds in seven European markets. We use quantile regressions to identify flight-to-safety episodes. The simple risk-return trade-off on the stock markets is negative which is caused by flight-to-safety episodes: During normal periods, the risk-return trade-off is positive and during flight-to-safety episodes it is negative. The effects of flight-to-safety episodes on the risk-return trade-off are qualitatively similar for own country flight-to-safety episodes, for flight from own country stock market to the US bond market, and for US flight-to-safety. The strength of the trade-off is strongest for own country flight-to-safety episodes. The risk-return trade-off is not significantly influenced by recession periods or the recent sovereign debt crisis. The main results hold for flight to gold instead of to bonds.
Original languageEnglish
Place of PublicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages27
StatePublished - 8 Nov 2017
SeriesCREATES Research Papers
Number2017-38

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