Price Reaction of Airline Stocks after Accidents: International Evidence

Daniel Reed Bergmann, Mauri Aparecido Oliveira, Victor Wood Machado

Abstract


Objective. In this paper we evaluate the reaction of airline stock prices after the occurrence of an extreme event, the air crash, based on international evidence.

Methodology. We selected 49 cases that occurred between January of 1990 and April of 2011, we used the method of event studies. Cumulative Abnormal Return (CAR) was obtained through the simple addition of all abnormal returns contained in an event window. We also tested the existence of price reaction differences in high and low disclosure markets.

Findings. The results obtained in this article, from a sample of 49 events, suggest that stock prices of air transport companies are instantaneously and negatively impacted by the occurrence of aerial accidents, average CAR of 4,3% until the tenth trading day after the event. And, this decrease in prices seems to be more pronounced when there are fatalities, but at the same time no differences were found due to the level of disclosure of the market in which the company is based. In addition, there appears to be a statistically significant negative reaction to the air crash, resulting in loss of shareholder wealth. The analyzes indicate that, as expected, the events in which victims were found, the loss of value of the company was considerably higher.

Originality/Value. This article, in a pioneering way, considers the level of disclosure typical of the markets in the evaluation of the reaction of the prices to the occurrence of aerial accidents.


Keywords


Event Study Method, Airline Disaster, Stock Price Reaction, Brazil, Airline Industry Shocks, Extreme Events



DOI: http://dx.doi.org/10.15194/jofi_2015.v1.i3.27

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Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

 

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