Oil price risk exposure: The case of the U.S. Travel and Leisure Industry

Abstract

We investigate the oil price risk exposure of the U.S. Travel and Leisure industry. In this paper, we utilize the Fama–French–Carhart's (1997) four-factor asset pricing model augmented with oil price risk factor. The results of our study suggest that oil price sensitivities vary significantly across six subsectors: airlines, gambling, hotels, recreational services, restaurants and bars, and travel & tourism. The extent of the exposure is generally negative, but it is particularly significant for a number of subsectors including airlines, recreational services and restaurants and bars. We also document that oil price risk exposures vary considerably over time. In particular, the 2007–2009 recession triggered by the U.S. subprime lending crisis has significantly contributed to the oil price risk exposure of airline industry. These results should be of much interest to financial analysts, corporate executives, money managers, regulators, and policy makers.