Flight to Quality Existence in the Egyptian Stock Market: An Analysis of Stock Market, Quality Stock and Treasury Bills

Abstract

This paper examines the existence of the flight to quality phenomenon in the Egyptian stock market and highlights the role of quality stock and Treasury bills in mitigating the risk associated with the falling condition of the stock market. We used the return of market portfolio (EGX30), Treasury bill and quality sorted portfolio from January 2008 to December 2017. We employed the auto regressive distributed lag model (ARDL) to postulate both the co-movement between quality stock return and market portfolio return and the co-movement between Treasury bill return and market portfolio return. Our findings show no existence of flight to quality behavior in the Egyptian stock market, and quality stock is a good diversifier. Whereas, flight to quality behavior exists between the stock market and treasury bills in the crisis periods, and treasury bill can be used as stabilizing investment tool.