The Impact of Demand and Supply Shocks on US Hospitality Index Returns

Abstract

In analysing the impact of demand and supply shocks on US hospitality index returns, this study tests whether these shocks can explain the index returns of five hospitality sectors: airlines, gambling, hotels, restaurants, and travel and leisure, and, if so, whether they have a different influence on hospitality index returns and market returns. The empirical test results show that both demand and supply shocks do affect US hospitality index returns and that the significant effects of both shocks vary across sectors. This paper identifies the critical role of changes in the corporate tax rate (demand shock and fiscal policy variable), the oil price growth rate (supply shock) and the labour wage growth rate (supply shock) in affecting hospitality index returns. Consistent with previous studies, the author finds that monetary policy (demand shock) still has a strong influence on hospitality index returns. However, hospitality index returns are not significantly related to the fiscal policy variable of changes in budget deficits. The paper concludes with a discussion of the results and their managerial implications for the guidance of hospitality business managers and investors interested in hospitality sectors.