The nexus between oil and airline stock returns: Does time frequency matter?

Mehrad Asadi, Son D. Pham, Thao T.T. Nguyen, Hung Do and Robert Brooks

Energy Economics, 2023, vol. 117, issue C

Abstract: This paper investigates the relationship between oil and airline stock returns under different time frequencies. First, we propose an Autoregressive moving average model with mixed frequency exogenous variable to analyse the different impacts of oil on airline stock returns on daily, weekly, and monthly basis. We consistently find a negative oil-airline stock return nexus on a daily basis, but a positive relationship on a weekly basis. While the former supports the economic-based channel, the latter is in line with the market inertia channel. Our findings help explain mixed results reported in the literature. Further, our time frequency connectedness analysis shows that the economic-based channel dominates the market inertia channel since the connectedness is more pronounced in the short-run compared to the medium- and long-run. Our block connectedness results highlight that business models of airline firms can play a significant role in affecting the connectedness, in which the low-cost airlines are more sensitive to the oil price changes. It is worth noting that there are distinguished drivers of the oil-airline stock return nexus in different time frequencies. The drivers also vary between the Global Financial Crisis and the COVID-19 pandemic. Our results are consistent under a battery of robustness checks and deliver important implications to investors, portfolio managers, and executives of airline firms.

Keywords: Crude oil; Airline stocks; Time and frequency connectedness; Block connectedness; Portfolio optimization (search for similar items in EconPapers)
JEL-codes: C58 G11 Q4 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:117:y:2023:i:c:s0140988322005734

DOI: 10.1016/j.eneco.2022.106444

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