Is this project an undergraduate, graduate, or faculty project?

Undergraduate

individual

Authors' Class Standing

Adam Travaglini, Junior

Lead Presenter's Name

Adam Travaglini

Faculty Mentor Name

Jayendra Gokhale

Abstract

This research study proposes to measure the volatility (abnormal movement) of stock prices in the passenger airline industry of the United States in the period 2011 to 2017. After coming out of the recession, the financial markets have witnessed a turbulence in crude oil prices. Since jet fuel is highly correlated with crude oil and forms almost 40% of a typical airline’s operating expenses, it is pertinent to study the effect of these fluctuations in oil prices in one of the main components of the transportation sector i.e. the aviation sector. The researcher used the market model proposed by Fama, Fisher, Jensen, and Roll (1969), which eventually led Professor Fama to win the Nobel Prize in economics in 2013. This paper studies the fluctuations by using a 90-day sliding window to measure the sensitivity of the relationship of airline stock returns and the overall markets. The preliminary results of this study show that the airlines considered generally possess a beta greater than 1 primarily due to the volatility in crude oil prices. This extreme volatility proves the whole sector remains prone to fluctuations in input prices.

Did this research project receive funding support (Spark or Ignite Grants) from the Office of Undergraduate Research?

No

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Volatility in Airline Stocks from 2011 to 2017

This research study proposes to measure the volatility (abnormal movement) of stock prices in the passenger airline industry of the United States in the period 2011 to 2017. After coming out of the recession, the financial markets have witnessed a turbulence in crude oil prices. Since jet fuel is highly correlated with crude oil and forms almost 40% of a typical airline’s operating expenses, it is pertinent to study the effect of these fluctuations in oil prices in one of the main components of the transportation sector i.e. the aviation sector. The researcher used the market model proposed by Fama, Fisher, Jensen, and Roll (1969), which eventually led Professor Fama to win the Nobel Prize in economics in 2013. This paper studies the fluctuations by using a 90-day sliding window to measure the sensitivity of the relationship of airline stock returns and the overall markets. The preliminary results of this study show that the airlines considered generally possess a beta greater than 1 primarily due to the volatility in crude oil prices. This extreme volatility proves the whole sector remains prone to fluctuations in input prices.

 

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