Understanding mispricing in the travel and leisure industry

Paresh Kumar Narayan and Susan Sunila Sharma

International Review of Financial Analysis, 2023, vol. 90, issue C

Abstract: In this paper, we show that the travel and leisure industry prices for 18 countries cannot be explained by conventional market risk factors. We, in other words, document significant evidence of mispricing, which increased exponentially due to the COVID-19 pandemic. We empirically show that COVID-19 related news, led by travel-related news, and COVID-19 support indices influenced industry mispricing. Trading on this mispricing is found to be economically significant for investors, who, by buying when prices are undervalued and selling when overvalued, can make annualized profits in the 3.11–25.02% range, depending on the country. These results are robust not only to different risk factors and subsamples, but also to the COVID-19 pandemic. Our findings have implications for travel industry stakeholders, policy makers, and investors.

Keywords: Travel; Leisure; Risk; Investors; Pandemic; Mispricing (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:90:y:2023:i:c:s105752192300385x

DOI: 10.1016/j.irfa.2023.102869

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