In times of war, natural disaster and international tension, financial markets can be thrown into confusion, causing investors to become extremely selective about the financial instruments they purchase. Such tendencies among investors are called a "flight to quality" in the U.S. and U.K. Investors often shift their money from stocks to bonds, especially short-term government securities, because of their high credit standing. At times of such uncertainty, many investors pull out of overseas investments or buy U.S. dollars in an effort to ensure the safety of their assets. The Sept. 11 terrorist attacks in the U.S., however, represent a type of threat that is different from conventional warfare, with many investors shunning the greenback out of concern about the future of the U.S. economy.
The movement of capital by investors to the safest possible investment. Flights to quality usually occur when the market is declining or a specific situation occurs within the marketplace that unsettles investors. Money market investors, for example, may only buy government securities if a major bank fails. See: Bear Market; Government Agency Securities; Money Market; Risk
