Abstract
This paper examines the impact of monetary policy shocks on air transportation stock returns and the effectiveness of risk management to mitigate these effects. Results from econometric analyses of high-frequency stock data finds airline stock returns to be highly sensitive to monetary policy shocks. Specifically examining airline financials, the transmission of these shocks is found to be strongest through airline cash flows via the discount rate effect. Moreover, major and non-major airline returns have become more sensitive to monetary policy shocks following the Great Recession and zero-lower bound of interest rates highlighting the necessity of managerial awareness. Despite the increased sensitivity, risk management strategies employed by airlines to address interest rate risk are found to be ineffective at mitigating the effects of these shocks. These findings suggest that airline managers may be better served devoting resources and attention to improved investment strategies and cash flow volatility mitigation.
Published Version
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