Abstract
The spread of misinformation with regards to aviation disasters continues to be a point of concern for aviation companies. Much of this information usually surrounds speculation based on the cause and responsibility attributed to the incident, implicitly possessing the potential to generate significant financial market price volatility. In this paper, we investigate a number of stylised facts relating to the effects of airline disasters on aviation stocks, while considering contagion effects, information flows and the sources of price discovery within the broad sector. Results indicate a substantially elevated levels of share price volatility in the aftermath of aviation disasters, while cumulative abnormal returns present sharp under-performance of the analysed companies relative to international exchanges. When considering an EGARCH analysis, we observe that share price volatility appears to be significantly influenced by the scale of the disaster in terms of the fatalities generated. Significant contagion effects upon the broad aviation index along with substantial changes in traditional price discovery channels are also identified. The role that the spread of information on social media, whether it be correct or of malicious origins, cannot be eliminated as an explanatory factor of these changing dynamics over time and region.
Highlights
The aviation sector has been exposed to a number of quite unique threats in recent years, while further experiencing some exceptionally rare events that few other industries must contest
We investigate as to whether a number of stylised facts relating to the effects of airline disasters on aviation stocks and contagion effects within the broad sector hold
We first clearly identify that substantially elevated levels of share price volatility, there is evidence to suggest that this volatility has somewhat decreased in the periods 2005 through 2019
Summary
The aviation sector has been exposed to a number of quite unique threats in recent years, while further experiencing some exceptionally rare events that few other industries must contest. The sector has been directly exposed to elevated threats of terrorism, with the most devastating events occurring in the United States in 2001 (Kim and Gu [2004]), resulting in widespread industrial reform and increased running costs. What is already considered to be deeply competitive industry generates substantial pressures on aviation companies with little scope allowed for error. Such pressures can manifest in exceptional industrial and managerial pressures to perform in line with industry expectations
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