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How Fuel Price Shocks Affect Airline Stock Returns: An Empirical Study Of Major Us Carriers

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  • Chris, C. Hsu

Abstract

This study investigated how airline stock prices respond to fuel price shocks using the asymmetric Glosten-Jagannathan-Runkle GARCH (GJR-GARCH (1,1)) model. Six airlines were selected, based on their service regions: American Airlines, Delta Air Lines, and United Airlines are larger international carriers that use various types of aircraft in their fleets and provide services in major continents, whereas Southwest Airlines, JetBlue Airways, and US Airways emphasize domestic market services and primarily use single-aisle aircraft. West Texas Intermediate Crude Oil (WTI) prices were adopted as the index of fuel prices. Based on our empirical results, a fuel price shock triggered fluctuations in airline stock returns. Moreover, American Airlines, Delta Air Lines, United, Airlines and US Airways experienced statistically significant negative relationships between their stock returns and fuel price shocks. Also, fuel price shocks significantly impacted airline stock returns during periods in which fuel prices increased but did not correlate with them during those in which such prices fell

Suggested Citation

  • Chris, C. Hsu, 2017. "How Fuel Price Shocks Affect Airline Stock Returns: An Empirical Study Of Major Us Carriers," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 11(2), pages 51-59.
    • Handle: RePEc:ibf:ijbfre:v:11:y:2017:i:2:p:51-59
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    Citations

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    Cited by:

    1. Mahtani, Umesh S. & Garg, Chandra Prakash, 2018. "An analysis of key factors of financial distress in airline companies in India using fuzzy AHP framework," Transportation Research Part A: Policy and Practice, Elsevier, vol. 117(C), pages 87-102.

    More about this item

    Keywords

    Fuel Shocks; GJR-GARCH; Airline Stock Return; Return Volatilities;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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