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Hedging the risk of travel and leisure stocks: The role of crude oil

Author

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  • Naji Jalkh

    (Saint Joseph University, Lebanon)

  • Elie Bouri

    (Holy Spirit University of Kaslik Jounieh, Lebanon
    University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam)

  • Xuan Vinh Vo

    (University of Economics Ho Chi Minh City, Vietnam)

  • Anupam Dutta

    (University of Vaasa, Finland)

Abstract

Unlike previous studies, we examine which of the implied volatilities of US stock and crude oil markets are more suitable and effective hedge for the downside risk of US travel and leisure (T&L) stocks. Using the corrected dynamic conditional correlation process, the results show that the T&L stock index is more negatively and more consistently correlated with the implied volatility of crude oil prices, suggesting that the oil implied volatility is a more suitable hedging asset. Similar results are reported for France, the United Kingdom, and developed markets. They are robust to the frequency of the data and model specification. Furthermore, the hedge ratios vary over time, which requires a regular update of hedged positions. Importantly, the highest hedge effectiveness is associated with the oil implied volatility.

Suggested Citation

  • Naji Jalkh & Elie Bouri & Xuan Vinh Vo & Anupam Dutta, 2021. "Hedging the risk of travel and leisure stocks: The role of crude oil," Tourism Economics, , vol. 27(7), pages 1337-1356, November.
    • Handle: RePEc:sae:toueco:v:27:y:2021:i:7:p:1337-1356
    DOI: 10.1177/1354816620922625
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    References listed on IDEAS

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