Tests of global flights to safety with US financial firm bankruptcy announcements
Tests of global flights to safety with US financial firm bankruptcy announcements
This paper investigates whether bankruptcy announcements by large US financial institutions can induce flights to safety, leading investors to seek safer investments. To test this relationship, we employ a short-horizon event study methodology and show that low-risk investments—such as the US dollar, sovereign bonds, and gold—exhibit significant appreciation following such announcements. This result is more pronounced when the local country-level investor sentiment declines in the post-announcement period. We also analyze the transmission mechanism through which bankruptcy announcements cause flights to safety and empirically identify a global information contagion channel via negative shocks to the cash flows of stocks.
bankruptcy announcements, financial firms, global information contagion, low-risk investments, sentiment
Kallenos, Theodosis L.
3202fc87-2ef6-400d-ab2c-d6fe5572474e
Papakyriakou, Panayiotis
71bed450-1b8e-4a9c-a393-60017c63b2d4
Sakkas, Athanasios
5a69d77a-fcea-4e07-bc18-5a8934a4899b
Taoushianis, Zenon
5c536511-1155-4a5b-8249-0a944572b7fc
Kallenos, Theodosis L.
3202fc87-2ef6-400d-ab2c-d6fe5572474e
Papakyriakou, Panayiotis
71bed450-1b8e-4a9c-a393-60017c63b2d4
Sakkas, Athanasios
5a69d77a-fcea-4e07-bc18-5a8934a4899b
Taoushianis, Zenon
5c536511-1155-4a5b-8249-0a944572b7fc
Kallenos, Theodosis L., Papakyriakou, Panayiotis, Sakkas, Athanasios and Taoushianis, Zenon
(2024)
Tests of global flights to safety with US financial firm bankruptcy announcements.
European Financial Management.
(doi:10.1111/eufm.12532).
Abstract
This paper investigates whether bankruptcy announcements by large US financial institutions can induce flights to safety, leading investors to seek safer investments. To test this relationship, we employ a short-horizon event study methodology and show that low-risk investments—such as the US dollar, sovereign bonds, and gold—exhibit significant appreciation following such announcements. This result is more pronounced when the local country-level investor sentiment declines in the post-announcement period. We also analyze the transmission mechanism through which bankruptcy announcements cause flights to safety and empirically identify a global information contagion channel via negative shocks to the cash flows of stocks.
Text
Euro Fin Management - 2024 - Kallenos - Tests of Global Flights to Safety With US Financial Firm Bankruptcy Announcements
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Accepted/In Press date: 25 October 2024
e-pub ahead of print date: 26 November 2024
Keywords:
bankruptcy announcements, financial firms, global information contagion, low-risk investments, sentiment
Identifiers
Local EPrints ID: 497122
URI: http://eprints.soton.ac.uk/id/eprint/497122
ISSN: 1354-7798
PURE UUID: 162ec5f6-6081-4be4-858c-5d1bb4fe1547
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Date deposited: 14 Jan 2025 17:43
Last modified: 22 Aug 2025 02:28
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Contributors
Author:
Theodosis L. Kallenos
Author:
Athanasios Sakkas
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