What Really Happens During Flight to Safety: Evidence from Real Estate Markets

Friday May 25, 2018
  • Working Paper


Flight to safety (FTS) affects the markets for risky assets such as stocks, corporate bonds, and commodities. Yet, little is known about the effects on commercial real estate. We show that REITs offer a partial hedge against FTS, with daily total returns being less sensitive to FTS than many other industries and measures of REIT liquidity actually improving on FTS days. However, a cluster of FTS days signals a decline in economic fundamentals in the long run. We find that the odds of a drop in REIT quarterly revenue increase by 15% after an FTS cluster, ceteris paribus. This effect persists for up to four quarters. We also find that commercial real estate price appreciation is all but wiped out over up to four quarters following an FTS cluster. Our findings benefit investors by providing estimates of the short-term return and liquidity response of REITs to FTS episodes, and by documenting long-term effects on REIT revenues and real asset values.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals. 


Boudry, W., Connolly, R. A., & Steiner, E. M. (2018). What really happens during flight to safety: Evidence from real estate markets (Working Paper). Chapel Hill, NC: Kenan-Flagler Business School. Available at SSRN: https://ssrn.com/abstract=3178922 or http://dx.doi.org/10.2139/ssrn.3178922