There are many variations of this already on the market. I had one that was from Sweden I think, it had a folding arm that would swing in. It had a pinwheel blade with reflectors on it. It was actually a government approved device. The theory I think is sound, I have seen cyclists doing this in Europe. I have never tried it.
I never googled anything like that, there are probably some on line. My advice would be to not have too much air resistance. I have seen ones that look like a stop sign too. ?? And some just like a lollipop, with an orange hi vis circle and a reflector.
The problem with the flag may be not much flat surface showing to the rear if it's windy or you are going fast. ? Maybe one of those safety triangles that reflect and fold up? I'm sure you can come up with something good for very little $$. I would like to see what it looks like when you are done!
They all are fastened to the rear of the bike, NOT the handlebars. You can take a bump on the bike and still stay up, not the bars as easily.
Put some kind of a hinge on it so that if it gets hit from the rear it will fold into the bike. Make the arm short enough so that it folds in behind your legs, just in case.
There are also a few variations of the marker light in the end of the handlebars too. Both for straight bars and drop bars. Check Performance Bike on line. They have them.
Here's one with red facing the rear and white facing forward. It looks good to me, You could make one.
http://www.cyclexpress.co.uk/product...ction_1560.asp