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

Naji Jalkh, Elie Bouri (), Xuan Vinh Vo and Anupam Dutta
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Xuan Vinh Vo: University of Economics Ho Chi Minh City, Vietnam
Anupam Dutta: University of Vaasa, Finland

Tourism Economics, 2021, vol. 27, issue 7, 1337-1356

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.

Keywords: conditional correlation; crude oil; hedge effectiveness; implied volatility; travel and leisure stocks (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:toueco:v:27:y:2021:i:7:p:1337-1356

DOI: 10.1177/1354816620922625

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