Is this project an undergraduate, graduate, or faculty project?
Undergraduate
Project Type
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, SURF, Research Abroad, Student Internal Grants, Collaborative, Climbing, or Ignite Grants) from the Office of Undergraduate Research?
No
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.