Scuttle for shelter: flight-to-safety and political uncertainty during the Spanish Second Republic

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