Flight-to-quality between global stock and bond markets in the COVID era

Stephanos Papadamou; Athanasios P Fassas; Dimitris Kenourgios; Dimitrios Dimitriou

doi:10.1016/j.frl.2020.101852

Flight-to-quality between global stock and bond markets in the COVID era

Financ Res Lett. 2021 Jan:38:101852. doi: 10.1016/j.frl.2020.101852. Epub 2020 Nov 18.

Authors

Stephanos Papadamou¹, Athanasios P Fassas², Dimitris Kenourgios³, Dimitrios Dimitriou³

Affiliations

¹ Department of Economics, Laboratory of Economic Policy and Strategic Planning, University of Thessaly, Greece.
² Department of Accounting and Finance, University of Thessaly, Greece.
³ Department of Economics, UoA Center for Financial Studies, National and Kapodistrian University of Athens, Greece.

Abstract

We investigate the impact of the recent COVID-19 pandemic on the time-varying correlation between stock and bond returns. Using daily data on bond and stock returns for ten countries, covering Europe, Asia, US and Australia regions, we identify flight-to-quality episodes during the COVID-19 global pandemic crisis employing both a panel data specification and a wavelet analysis. Our empirical results demonstrate that flights occur simultaneously across countries and are not country-specific events. This finding suggests that the two largest asset classes offered diversification to investors during the recent crisis, when they actually needed it the most.

Keywords: COVID-19 pandemic; Flight-to-quality; G12; G14; Google trends; Panel regression JEL codes C33; Stock-bond returns correlation; Wavelets.