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Flight-to-safety and the risk-return trade-off: European evidence

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This paper investigates flight-to-safety from stocks to bonds in six European markets. We use quantile regressions to identify flight-to-safety episodes. The conditional risk-return trade-off on the stock markets is negative.… Click to show full abstract

This paper investigates flight-to-safety from stocks to bonds in six European markets. We use quantile regressions to identify flight-to-safety episodes. The conditional risk-return trade-off on the stock markets is negative. Flight-to-safety episodes strengthen the negative trade-off. The effects of flight-to-safety episodes on the 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 episodes. The strength of the trade-off is strongest for US flight-to-safety episodes. Flight-from-safety has the opposite effect on the trade-off.

Keywords: flight; flight safety; return trade; risk return; safety episodes

Journal Title: Finance Research Letters
Year Published: 2020

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