Abstract The present study examines the impact of uncertainties around climate policy on the stock returns of eight US airlines between 2007 and 2023. To examine how climate policies impact daily airline stock volatility through the long-run component of total volatility, the monthly climate policy uncertainty index is utilized. Using full-sample and out-of-sample estimations, we investigate the problem using the Generalized Autoregressive Conditional Heteroscedasticity-Mixed Data Sampling model. To further assess forecasting accuracy, the Diebold and Mariano as well as Superior Predictive Ability methodologies are applied. According to the full-sample estimation results, just two airlines showed a significant relationship with climate policy uncertainty. Meanwhile, six airlines including three of the “big four” airlines were significantly affected by the former, according to the out-of-sample data. Forecasting results indicate that the climate policy uncertainty-based model outperforms the other models in projecting airline returns. The results have significant theoretical and applied ramifications for comprehending sectoral asset valuations in the context of uncertain climate policy.

    Highlights We investigate the stock market responses of U.S. airlines to climate policy uncertainty. GARCH-MIDAS is utilized to analyze airline stock market reactions. There is a reduced response of airline stocks to climate policy uncertainty, as estimated by the full sample. The majority of stock prices respond to climate policy uncertainty on the basis of out-of-sample estimates. The performance of climate policy uncertainty-based model forecasts surpasses that of alternative GARCH models.


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    Title :

    Airlines and climate policy uncertainty: Are the sector's stocks soaring or stalling?




    Publication date :

    2024-01-02




    Type of media :

    Article (Journal)


    Type of material :

    Electronic Resource


    Language :

    English