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Scuttle for shelter: flight-to-safety and political uncertainty during the Spanish Second Republic
[The mother of all sudden stops: capital flows and reversals in Europe, 1919–32]

Author

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  • Stefano Battilossi
  • Stefan O Houpt
  • Gertjan Verdickt
Abstract
The Spanish Second Republic was a unique experiment of democratization in interwar Europe, which was characterized by extreme levels of political uncertainty. We find that investors responded to shifts in uncertainty by selling stocks in favor of government bonds—a behavior known as flight-to-safety. Additionally, we find that political uncertainty caused stock market stress and induced significant differences in the cross-section of expected stock returns, consistent with the exposures to political uncertainty. The fact that investors recurrently scuttled to shelter into government bonds suggests that they did not perceive a radical change in the political regime as an immediate and credible threat.

Suggested Citation

  • Stefano Battilossi & Stefan O Houpt & Gertjan Verdickt, 2022. "Scuttle for shelter: flight-to-safety and political uncertainty during the Spanish Second Republic [The mother of all sudden stops: capital flows and reversals in Europe, 1919–32]," European Review of Economic History, European Historical Economics Society, vol. 26(3), pages 423-447.
    • Handle: RePEc:oup:ereveh:v:26:y:2022:i:3:p:423-447.
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    File URL: http://hdl.handle.net/10.1093/ereh/heab022
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    Cited by:

    1. Verdickt, Gertjan & Deloof, Marc, 2024. "Banking on innovation: Listed and non-listed equity investing, evidence from société générale de Belgique, 1850–1934," Explorations in Economic History, Elsevier, vol. 93(C).
    2. Lopez-Gomez, Laura & Martinez-Rodrigue, Susana, 2023. "Can economic rationality explain the feminization of shareholding? Evidence from female shareholders in Spain (1918-1948)," MPRA Paper 119740, University Library of Munich, Germany.
    3. Betrán, Concepción & Huberman, Michael, 2024. "Unintended consequences: International trade shocks and electoral outcomes during the Second Spanish Republic, 1931–1936," Explorations in Economic History, Elsevier, vol. 92(C).

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