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Volatility spillovers and hedging effectiveness between health and tourism stocks: Empirical evidence from the US

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  • Salisu, Afees A.
  • Akanni, Lateef O.
  • Vo, Xuan Vinh

Abstract

The study evaluates the return and volatility transmission between the health and tourism stocks. The outbreak of covid-19 pandemic brought about an unprecedented crisis in the global health and financial market with the tourism sector being among the largest casualty as it experienced an almost total collapse as a result of economic lockdowns and movement restrictions, while the health sector witnessed considerable boom. We employ the VARMA–CCC-AGARCH model, based on the preliminary tests, on daily data collected for health and tourism stocks between January 02, 2018 and July 09, 2020. The empirical estimation is also partitioned into full, pre-covid-19 and covid-19 periods to elicit the impact of the pandemic outbreak. We further examine the optimal weights of holding health and tourism stocks and compute the hedging ratios in the presence of health risks. Our empirical findings show evidence of significant negative bidirectional return spillover between the health and tourism sectors particularly during the covid-19 period. In addition, the hedge ratios further confirm the hedging effectiveness of health stocks for risks associated with tourism stocks particularly during the pandemic period. Essentially, our results show that a diversified asset portfolio that includes health together with tourism stocks may improve risk-adjusted return performance for investors especially during pandemics.

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  • Salisu, Afees A. & Akanni, Lateef O. & Vo, Xuan Vinh, 2021. "Volatility spillovers and hedging effectiveness between health and tourism stocks: Empirical evidence from the US," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 150-159.
    • Handle: RePEc:eee:reveco:v:74:y:2021:i:c:p:150-159
    DOI: 10.1016/j.iref.2021.02.005
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    Cited by:

    1. Choi, Sun-Yong, 2022. "Dynamic volatility spillovers between industries in the US stock market: Evidence from the COVID-19 pandemic and Black Monday," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    2. Tirimisiyu F. Oloko & Abeeb O. Olaniran & Lukman A. Lasisi, 2021. "Hedging Global and Country-Specific Geopolitical Risks With South Korean Stocks - A Predictability Approach," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 2(3), pages 1-5.
    3. Corbet, Shaen & Hou, Yang & Hu, Yang & Oxley, Les, 2022. "Did COVID-19 tourism sector supports alleviate investor fear?," Annals of Tourism Research, Elsevier, vol. 95(C).
    4. Daniel Badulescu & Ramona Simut & Ciprian Simut & Andrei-Vlad Badulescu, 2022. "Tourism at the Crossroads between Well-Being, Public Health and the Environment: Panel Data Evidence from the European Union," IJERPH, MDPI, vol. 19(19), pages 1-22, September.
    5. Lang, Chunlin & Hu, Yang & Corbet, Shaen & Goodell, John W., 2023. "Dynamic return connectedness between commodities and travel & leisure ETFs: Investment strategies and portfolio implications," Finance Research Letters, Elsevier, vol. 58(PB).
    6. Al-Nassar, Nassar S. & Yousaf, Imran & Makram, Beljid, 2023. "Spillovers between positively and negatively affected service sectors from the COVID-19 health crisis: Implications for portfolio management," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    7. Florin-Teodor Boldeanu & Adriana Veronica Litră & José Antonio Clemente-Almendros & Ileana Tache, 2022. "The link Between Stock Exchange Sectors and Indices: Implications During the COVID-19 Pandemic," SAGE Open, , vol. 12(4), pages 21582440221, December.

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    More about this item

    Keywords

    Volatility spillovers; Hedging effectiveness; Health stocks; Tourism stocks;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Z31 - Other Special Topics - - Tourism Economics - - - Industry Studies

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