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What is Flight to Safety

Emerging Tools and Strategies for Financial Management
Investors buy bonds (safer investments) when they sell stocks (higher-risk investments) in order to reduce the losses that investors suffer in crises periods.
Published in Chapter:
Financial Contagion and Shock Transmission During the Global Financial Crisis: A Review of the Literature
Thomas J. Flavin (Maynooth University, Ireland) and Dolores Lagoa-Varela (Universidade da Coruña, Spain)
Copyright: © 2020 |Pages: 25
DOI: 10.4018/978-1-7998-2440-4.ch008
After the recent financial crisis, the analysis of shock transmission across the financial system has received a great deal of attention. In particular, the role of financial contagion as a shock propagation mechanism has been studied in detail. The globalisation of financial and banking markets has increased the connections and relationship between them. Hence, recent crises have spread all around the world. The stability of linkages between financial assets across different market conditions cast doubt upon the benefits of portfolio diversification. This chapter reviews the extant literature on financial contagion during the global financial crisis and thus provides information for both portfolio managers (when optimizing their investment portfolios) and policymakers (when designing their strategies in order to mitigate spillover effects during crisis periods).
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