The flight‐to‐quality effect: a copula‐based analysis |
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| Authors: | Robert B Durand Markus Junker Alex Szimayer |
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| Institution: | 1. UWA Business School, University of Western Australia, Crawley, 6009, Australia;2. MaSt services GmbH & Co. KG, Gottfried‐Daniels‐Stra?e 1, 50825 K?ln, Germany;3. Department of Economics, University of Bonn, Adenauerallee 24‐42, 53113 Bonn, Germany |
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| Abstract: | We derive and estimate a copula combining the features of the Frank and Gumbel copulas to analyse the relationship between equity and long‐term bond returns. Our analysis of quarterly returns from 1952 to 2003 finds that, in general, there is a positive relationship between equity returns and bond returns. In extreme situations, however, there is approximately a one‐in‐seven chance of a flight‐to‐quality effect where large negative equity returns are associated with large positive bond returns. |
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| Keywords: | Flight‐to‐quality Copulas Tail dependence G12 |
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