A market phenomenon that reflects the flow of funds from riskier investments to safer ones. Flight to quality occurs when investors and fund managers reallocate their portfolio holdings in response to changes in uncertainty in the economy. This usually involves a shift from some type of investment to another. For example, investors may move from holdings of speculative-trade instruments to investment-grade instruments, or from equity investments to debt instruments with high credit ratings.
The flight to quality is typically caused by (1) uncertainty or fear in the financial markets (where investors move their money out of equities and into money market funds and government securities), (2) political turmoil (where investors move their funds from high-risk countries to less risky ones).
