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The Competitive Impact of Air Crashes: Stock Market Evidence

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  • Bosch, Jean-Claude
  • Eckard, E Woodrow
  • Singal, Vijay

Abstract

We examine stock market reactions to commercial air crashes to test the hypothesis that consumers respond by switching to rival airlines and/or flying less. We focus on the stock price reactions of airlines not involved in the crash. If switching occurs, noncrash airlines should benefit to the extent that they are direct competitors of the crash airline. We develop a measure of market overlap and regress individual non-crash-airline abnormal returns on this measure, allowing the constant term to capture any negative spillovers. The evidence supports both a switching effect and a spillover. Copyright 1998 by the University of Chicago.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Law & Economics.

Volume (Year): 41 (1998)
Issue (Month): 2 (October)
Pages: 503-19

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Handle: RePEc:ucp:jlawec:v:41:y:1998:i:2:p:503-19

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Web page: http://www.journals.uchicago.edu/JLE/

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Cited by:
  1. Daniel Hosken & John David Simpson, 2001. "Have Supermarket Mergers Raised Prices? An Event Study Analysis," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(3), pages 329-342.
  2. Walker, Thomas John & Walker, Marcus Glenn & Thiengtham, Dolruedee Nuttanontra & Pukthuanthong, Kuntara, 2014. "The role of aviation laws and legal liability in aviation disasters: A financial market perspective," International Review of Law and Economics, Elsevier, vol. 37(C), pages 51-65.
  3. Kaplanski, Guy & Levy, Haim, 2010. "Sentiment and stock prices: The case of aviation disasters," Journal of Financial Economics, Elsevier, vol. 95(2), pages 174-201, February.
  4. Becchetti, Leonardo & Ceniccola, Claudia & Ciciretti, Rocco, 2010. "Stock Market Reaction to the Global Financial Crisis: the Role of Corporate Governance and Product Quality Ratings in the Lehman Brothers' Event," Sustainable Investment and Corporate Governance Working Papers 2010/14, Sustainable Investment Research Platform.
  5. Gregory Noronha & Vijay Singal, 2004. "Financial health and airline safety," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 1-16.
  6. Abbigail Chiodo & Massimo Guidolin & Michael T. Owyang & Makoto Shimoji, 2003. "Subjective probabilities: psychological evidence and economic applications," Working Papers 2003-009, Federal Reserve Bank of St. Louis.
  7. John Simpsom, 2001. "Did May Company's Acquisition of Associated Dry Goods Corporation Reduce Competition? An Event Study Analysis," Review of Industrial Organization, Springer, vol. 18(4), pages 351-362, June.
  8. repec:ise:isegwp:wp182008 is not listed on IDEAS
  9. John Cawley & John A. Rizzo, 2005. "The Competitive Effects of Drug Withdrawals," NBER Working Papers 11223, National Bureau of Economic Research, Inc.
  10. Seth Freedman & Melissa Kearney & Mara Lederman, 2012. "Product Recalls, Imperfect Information, and Spillover Effects: Lessons from the Consumer Response to the 2007 Toy Recalls," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 499-516, May.
  11. Ho, Jerry C. & Qiu, Mei & Tang, Xiaojun, 2013. "Do airlines always suffer from crashes?," Economics Letters, Elsevier, vol. 118(1), pages 113-117.
  12. Moritz Meyer-ter-Vehn & Simon Board, 2009. "Reputation for Quality," 2009 Meeting Papers 160, Society for Economic Dynamics.
  13. Carlos P. Barros & Joao R. Faria & Luis A. Gil-Alana, 2009. "Persistence on airline accidents," Faculty Working Papers 08/09, School of Economics and Business Administration, University of Navarra.

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