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Geopolitical Risks and Tourism Stocks: New Evidence from Causality-in-Quantile Approach
Abstract
This study examines the relationship between Geopolitical Risks (GPR) and Travel and Leisure (T&L) stocks. The scope of this study is based on six emerging countries. Analyses are done using a non-parametric causality-in-quantile approach, whose advantages include: (i) robustness to misspecification errors; (ii) simultaneously examine causality in mean and variance. We find that GPR is weakly related to the T&L stock for both Indonesia and South Korea. However, significant relationships ensue for India, China, Malaysia, and Israel. It is also observed that GPR can better predict the volatility of T&L stock compared to stock returns. These results are robust to alternative measures of GPR.
... use the conditional variance of the GARCH-MIDAS model in two parts (the short-run and the long-run components) to examine the explanatory and predictive power of GPR factors for volatility in the capitalization-weighted stock market index 300, and they find that GPR Treat generates a stronger and positive impact on the volatility in the capitalization-weighted stock market index. Using a standard linear regression model, (Raheem & le Roux, 2023) investigate the association between geopolitical risk and Travel and Leisure equities for six rising tourist attraction countries (Indonesia, South Korea, Malaysia, India, China, and Israel). The findings indicate that terrorism has no effect on stocks or that more significant terrorist actions have a minor impact on the travel and tourist industry when compared to less severe assaults. ...
The study aims to analyze the effects of geopolitical risk on the return of growth/Major Indian stocks during expansionary and recessionary periods across a conditional distribution. We selected a sample covering the period between 01/2003-09/2023. ARDL Model were applied to examine the existence of impact of geopolitical risk and Indian News-Based Policy Uncertainty Index on major Indian stock indices. The present study employed a range of econometric techniques, including the ARDL bound-testing methodology and Johansen co-integration process, to ascertain the existence of a long-term co-integrating relationship among the variables. The findings indicate that there exists a detrimental impact of geopolitical risk on equities, with the magnitude of this impact varying based on the specific characteristics of the stock. The adverse impact is mitigated by the economic cycle; however, it gradually diminishes towards the bottom end of the stock return distribution. The results of this study provide further insight into investing methods employed by growth/value investors who seek to capitalize on opportunities that emerge throughout shifts in the economic cycle. This study offers evidence regarding the ways in which the economic cycle affects the relationship between geopolitical risk and growth/value and small/large stocks.
... Empirical studies have demonstrated the adverse consequences of GPR on economic activity and integration (Borojo, Yushi, and Miao 2022;Kim and Jin 2023). Caldara and Iacoviell (2022) and Raheem and le Roux (2023) explain that GPR worsens the investment and trade climate by increasing the likelihood of economic recessions, capital loss, and stock return volatility. Additionally, GPR causes disruptions in energy prices and supply chains, leading to increased input costs and food inflation (Liu and Papa 2022;Sohag, Monirul Islam, and Mariev 2024). ...
... Global or regional geopolitical events affect neighboring markets because of the contagion effect. Research, which intensified after the war in Ukraine, reveals that GPR events affect stocks (Raheem & Le Roux, 2023), commodities (Gong & Xu, 2022), gold (Adeosun et al., 2024), oil (Ahmed et al., 2023;He & Sun, 2024), energy (Böyükaslan et al., 2024;Mamman et al., 2024;Wang et al., 2024), and cryptocurrencies (Aysan et al., 2019;Singh et al., 2022). GPR's emergence caused investors to migrate to heaven assets (Elsayed et al., 2022) for protection against risk. ...
This study examined the stock market volatility of the member states of the South Asian Association for Regional Cooperation (SAARC) and geopolitical risk (GPR). The analysis period covered January 2014 to March 2024, and the time–frequency wavelet method was used to process the data. The time-varying parameter vector autoregression and spatial autoregressive models helped determine the dynamic connectedness of volatility in the analyzed states. The findings revealed similar stock market connections in Bangladesh and India. In addition, a comparative analysis of stocks in India and Pakistan led to the identification of common elements. The connection between geopolitical concerns and Sri Lankan stocks was the strongest and increased in intensity after 2019. GPR and Nepal’s stock market maintained a continuous but low-intensity relationship. The dynamic connectedness between member states’ stock markets was limited during the review period. The study results could encourage SAARC governments to bridge their political differences to ensure that South Asia becomes a strong partner in the global economy. Equally, our results can benefit investors, financial institutions, regulatory authorities, and governments.
... For example, Papagianni et al. (2023) have found that geopolitical tensions have a persistent negative effect on tourism demand in most emerging market and developing economies. Kumar (2023) also reveals a strong negative relationship between geopolitical uncertainty and the European travel and leisure sector, while Raheem and le Roux (2023) sheds light on the very negative relationship that global geopolitical uncertainty has in the tourism industry of countries such as India, China, Malaysia and Israel. This panorama highlights the existence of strong uncertainty about the development of nighttime tourism globally in a medium-term scenario, especially given the current and worrying escalation of the war dialectic between the Western bloc governments (US and EU) and Vladimir Putin's regime. ...
... In general, financial markets are negatively impacted by significant GPR, as they lower stock prices and cause higher return volatility [4]. As stocks are affected by GPR, investors look to adjust their portfolios; consequently, there will be fewer riskier investments which will exacerbate the volatility of financial markets and further large price swings [5]. ...
This study investigates co-movements between the GPR generated by the Crimean Peninsula’s annexation in 2014, the Russia–Ukraine war in 2022, and the volatility of stock markets in the G7 states. Using wavelet analysis, concentrated co-movement was found for all indices in both periods. Contrary to the general perception, we find that the G7 financial market response in 2014 was robust. Using a time-varying parameter vector autoregression (TVP-VAR) test, we found a larger reaction in the amplitude of the G7 financial markets in 2022 than in 2014. The financial markets in France, Germany, and the UK showed a similar reaction in 2022. We have identified some common aspects, even if the political and military contexts of the two studied events were completely different. Our findings offer new and interesting implications for understanding how geopolitical risk affects financial assets for market participants with multiple investment horizons and strategies.
... However, we are aware of the potential limitations of this approach and we interpret the findings with caution. 18 For a study on the effect of geopolitical risks and economic policy uncertainty and tourism, see Raheem and le Roux (2023). For a study on the effect of ICT on tourism development see Lee et al. (2021). ...
We revisit the tourism‐led growth hypothesis by utilising a panel set of 108 countries over the period 1996–2017. We quantify the effects of tourism on the entire conditional distribution of economic growth for both relatively poor and relatively rich countries within a panel quantile regression framework. We address the unobserved heterogeneity and potential endogeneity concerns. We reveal that the lower the conditional growth rate a country experiences the more important is tourism development for the conditional growth distribution for both developing and developed countries. The size of the effect in developed countries is twice as high as in developing ones. On the other hand, tourism specialisation is beneficial only at higher quantiles of the conditional growth distribution and only for developed countries. On the contrary, it brings about an undesirable effect in developing countries. Finally, we examine the impact of a reduction in tourism activity on economic growth due to an exogenous shock (i.e., COVID‐19). Simulation analysis based on the quantile regression estimates shows that countries facing relatively low growth rates conditionally to the growth distribution are affected the most. Policymakers may consider the importance of tourism activity in the growth process and formulate strategies that align with the growth experience of each country.
This study examines the influence of geopolitical risk (GPR) on the stock returns of 75 global representative defense companies. Our argument is based on the premise that the Crimean Peninsula's 2014 annexation was a turning point for the defense industry. The study uses wavelet coherence and phase differences to examine daily datasets spanning from January 1, 2014 to December 31, 2023. We find that 50.6 % of the defense companies experienced immediate effects following the Crimean Peninsula's annexation. Among all headquarters, the reaction of companies from Europe, the US, and South Korea in 2014 was noteworthy. Subsequently, during the COVID-19 pandemic, 30.6 % of companies recorded movements with a medium frequency, revealing negative and moderate influence. Furthermore, the Russia–Ukraine war impacted the stocks of 81.4 % of the defense companies in our sample. The results clearly demonstrate the defense industry's global growth trend, particularly after 2014. Additionally, the conflict between Israel and Hamas that began in October 2023 has had a local effect on the Israeli defense industry without contributing to the spread of GPR. The study concludes that investors and decision makers must shift orientation toward knowledge of defense industry stocks to hedge and diversify the risks induced by GPR.
Predicting tourism demand is crucial for policymakers and stakeholders in the tourism industry, enabling them to enhance promotional strategies, optimize marketing efforts, align investments, and achieve operational efficiency. While existing research has highlighted the negative impact of global risk factors such as geopolitical risks, economic policy uncertainty, and climate changes on tourism demand, the specific influence of climate policy changes and their differential impact on tourist arrivals has been less explored. Addressing this gap, our study employs bivariate, multiple, and partial wavelet methods to analyze the differential impact of climate policy uncertainty and geopolitical risk on tourism arrivals in the United States. Utilizing recent monthly data from January 1996 to August 2022, we uncover significant time-frequency varying dependencies between these factors and tourism demand. Our causality analysis reveals that both geopolitical risk and climate policy uncertainty are key determinants of tourism demand in the U.S. Furthermore, the Nonlinear Autoregressive Distributed Lag model corroborates the findings of the wavelet analysis, highlighting asymmetrical interactions in the long run. These findings offer valuable insights and have significant implications for policymakers and industry stakeholders, suggesting the need for adaptive and responsive tourism strategies that consider the evolving landscape of geopolitical and climate policy uncertainties.
Geopolitical risk can have an impact on investment behavior and rates of return. We explore the time-varying relation between the daily geopolitical risks index (GPRD) and tourism market. We use tourism tokens (TTI) and tourism equity market indices (WHRL) as proxies of the tourism industry. Results from DCC-GARCH analysis depict weak co-movements between GPRD-TTI and GPRD-WHRL pairs. However, concerning time-varying Granger causality, the GPRD-WHRL pair exhibited longer periods of a significant relationship along with bidirectional causality during the Russia-Ukraine war, whereas the COVID-19 pandemic’s effect was weak in both pairs. Spillovers identified through Q-VAR analysis revealed more pronounced effects of GPRD on each variable during both market events, albeit with a more apparent and stronger influence on WHRL. These findings suggest that the cryptocurrency market may not consistently and effectively incorporate geopolitical risk factors, whereas equity markets demonstrate a greater capacity to capture and respond to such risk factors.
Az incentív utazásokat a vállalkozások a munkavállalóik ösztönzésére alkalmazzák, a témakör biztonsággal való kapcsolata kutatási résnek tekinthető. Jelen tanulmány célja az incentív utazásokon részt vevő munkavállalók kockázatészlelésének és kockázatcsökkentési stratégiáinak vizsgálata. A szerzők a kvalitatív kutatás során 43 olyan munkavállalót kérdeztek meg, akik 2017-2021 között utaztak incentív turisztikai célból. A vizsgálat során az utazásokon átélt veszélyeket, illetve a biztonságot garantáló elemek feltárását végezték el. Az incentív utazásokkal kapcsolatos kockázatészlelés tárgykörében hat másodrendű faktort tártak fel: a közbiztonság hiányából, az egészségi állapotból, a problémás teljesítményből, az információhiányból, a repüléssel és az utazással kapcsolatos félelmekből, valamint az incentív utazás jellegéből adódó aggodalmakat. A kutatás alapján meghatároztak három kockázatcsökkentő faktort: a bizalmat a munkaadóban, a helyszíni szolgáltatókban, valamint az önbizalmat és a magabiztosságot. Több gyakorlati javaslatot fogalmaztak meg: az incentív utazások előkészítésébe érdemes tapasztalt kollégákat bevonni, egy tájékoztató keretében felkészíteni az utazókat, valamint feladat a munkavállalók önbizalmának növelése.
Purpose
Many tourism academics have investigated the linkages between tourism, power and space; few have specifically addressed the profound links between tourism and geopolitics. In view of the restrictive assumptions of the linear framework used in the earlier studies, and hidden asymmetries present in the time series data. Against this backdrop, the study tries to find out how tourists may respond differently to favourable and unfavourable shocks in geopolitical risk (GPR).
Design/methodology/approach
In order to capture this asymmetric nature of the problem, the study employs the non-linear autoregressive distributed lag (NARDL) model to evaluate data from 2001Q1 to 2019Q4.
Findings
The results show that both positive and negative shock to GPR does not produce results of equal magnitude. A positive shock to GPR has a more detrimental effect on foreign tourist arrivals (FTA) than a beneficial effect a negative shock produces. Besides this, the present study also looks at the effect of other macro-economic variables on FTA. An ascend in the real effective exchange rate (REER) i.e. appreciation of the domestic currency has an unfavourable impact on foreign visitor arrivals, while an increase in world gross domestic product amplify it. The results of the study are robust to alternative measures of the control variable.
Practical implications
The study is significant for policymakers in understanding the short and long-run implications of GPR on FTA in India. The present study can assist policymakers, and destination managers to manage the external and internal risks and minimise the consequences of geopolitical threats on the Indian tourism industry. Consequently, destination managers can utilise the study's findings in calibrating their operations and designing crisis marketing strategies within the geopolitical dynamics of the Indian state.
Originality/value
The study tries to find out how tourists may exhibit distinct reactions to positive and negative disturbances in GPR. The study provides first-hand evidence of how GPR impacts tourism demand. The paper also includes the existing body of literature related to GPR factors and their effect on tourist influx, specifically in the framework of the Indian tourism sector.
A bulk of literature suggests that geopolitical events such as terrorist attacks dampen tourism demand. However, there is little research on whether this effect helps predict the return of the tourism equity sector. We provide country-level evidence on whether local and global geopolitical risk (GPR) predicts the first and second moments of tourism stocks in emerging economies. This objective was achieved by employing the non-parametric causality-in-quantiles (CiQ) model and a cross-quantilogram (CQ) test, which allowed us to uncover the predictive potential of GPR for the tourism sector equities. Our findings, obtained through the CiQ model, suggest that while both local and global GPRs carry significant potential for predicting the returns and volatility of tourism stocks of most emerging economies under normal market conditions, they seem to play no such role in certain countries. These countries include South Korea, for which only a limited number of tourism stocks trade on the domestic stock market compared to other sectors, and Colombia, for which both the domestic stock market and tourism sectors are at an emerging stage. Further, it turns out that, compared to its local counterpart, global GPR has a more pronounced predictive power for the tourism stocks of emerging economies. Finally, with some exceptions, the results are qualitatively similar, and hence reasonably robust, to those when a directional predictability model is applied. Given that geopolitical shocks are largely unanticipated, our findings underscore the importance of a robust tourism sector that can help the market recover to stability as well as an open economy that allows local investors to diversify country-specific risks in their portfolios. Implications and directions for future research are discussed.
In recent times, the “Arab Spring” has seen most tourism-dependent economies such as Turkey experienced an unprecedented wave of political unrest which has impacted the outlook of the tourism industry significantly. To this effect, this study uses the modified version of the Granger causality approach advanced by Toda and Yamamoto (1995) to examine the direction of causality among the newly introduced geopolitical risk index, tourism and economic growth in the case of Turkey. To the best of our knowledge, this study is the first to examine the interrelationship between these variables in a multivariate causality study using quarterly frequency data 1985Q1-2017Q4. Empirical results indicate a unidirectional causality running from geopolitical risk index to economic growth and from geopolitical risk index to tourism. Finding also show that a one standard deviation shock to geopolitical risk has a noticeable negative impact on tourism and economic growth both in the short- and long-run.
The relationship between the tourism industry and unexpected nonmacro incidents has received limited academic coverage. As a result, the quantifiable impact of such events on tourism-specific stock values, both in terms of returns and volatility, remains grossly underexamined. Motivated by the reasoning that the well-established features inherent to the tourism industry may trigger a different pattern of stock price movement compared with other industries, and by using econometric methodology, this article investigates the reaction of five hospitality/tourism stock indices to 150 incidents, depicting major Acts of Terrorism, natural catastrophes, and War conflicts that have taken place since the year 2000. Empirical findings underscore the effect of such incidents on stock indices, with distinctive differences among the types and specificities of each event under investigation. This article contributes to the extant literature and enhances our conceptual capital pertaining to the tourism industry’s current financial practices related to stock performance and behavior.
This study applies a non-parametric causality-in-quantiles test to examine the causal effect of geopolitical risks on return and volatility dynamics of Islamic equity and bond markets. Geopolitical risks are generally found to impact Islamic equity market volatility measures, rather than returns. However, geopolitical risks tend to predict both returns and volatility measures of Islamic bonds. Interestingly, causality, when it exists for returns and/or volatility of Islamic equities and bonds, is found to hold over entire conditional distributions of returns and volatilities, barring the extreme ends of the same.
The purpose of this paper is to examine the impact of terrorism on tourism demand in Greece using monthly data from 1977 to 2012. We investigate whether this relationship is bidirectional and whether it exhibits long run persistence. Thus, we employ a large dataset of terrorist incidents and perform cointegration and long-run causality tests, correcting our data for cyclical seasonality and applying PCA to construct a terrorism proxy according to the severity of the incident. Our findings concur that terrorism has a significant negative impact on tourist arrivals to Greece and that causality is noted from terrorism to tourism only. The results suggest that authorities should establish firm measures against terrorism and that further actions should be taken to promote tourism, safety and security, as a response to terrorist incidents. Our study is, to the best our knowledge, the first to approach terrorism using a three-factor proxy with qualitative features.
Purpose – The purpose of this viewpoint paper is to discuss whether dark tourism can be developed around the sites of recent terrorist attacks in France.
Design/methodology/approach – The paper is based on a literature review of key terms: dark tourism; tourism; and terrorism.
Findings – The paper observes that dark tourism is not popular in France, and dark tourism activities are unlikely to develop anywhere nearer the places where the recent terrorist attacks happened. France remains rather conservative in some aspects related to death.
Practical implications – Recent events in France might challenge the leadership of the destination. The disturbing commonalities between tourism and terrorism make it difficult to figure out suitable recovery strategies that would contribute to enhancing the image of the destination without jeopardising the life of civilians.
Originality/value – This paper presents France as a politically unstable tourist destination. In general, this scenario is normally associated with less-developed countries or non-established tourist destinations.
A recent strand in the literature emphasizes the role of news-based economic policy uncertainty (EPU) and equity market uncertainty (EMU) as drivers of oil price movements. Against this backdrop, this paper uses a kth-order nonparametric quantile causality test, to analyse whether EPU and EMU predict stock returns and volatility. Based on daily data covering the period of 2 January 1986 to 8 December 2014, we find that, for oil returns, EPU and EMU have strong predictive power over the entire distribution barring regions around the median, but for volatility, the predictability virtually covers the entire distribution, with some exceptions in the tails. In other words, predictability based on measures of uncertainty is asymmetric over the distribution of oil returns and its volatility.
Studies focusing on the relationship between transnational terrorism and tourism examine the effect of terror on tourism, while this study looks at a different question: does international tourism affect transnational terrorism? We hypothesized that the higher the number of international tourist arrivals to a country, the higher the number of terror attacks, and examined this effect from four distinct aspects: perpetration by foreign attackers against local victims, perpetration by local attackers against foreign victims, perpetration by foreign attackers against foreign victims, and perpetration of terror attacks against foreign private parties. We conclude that there is an inverse U relationship between number of arrivals and number of attacks perpetrated by foreigners, and also a robust significant relationship between number of arrivals to a country and terror attacks in which both the attacker and the victim are foreigners. However, it is not unequivocal whether this is a positive linear or an inverse U relationship.
In this study, we examine the vulnerability and resiliency of 10 tourism-based regional economies which include US national parks or seashores (situated on the Gulf of Mexico or Atlantic Ocean coastline) affected by several hurricanes over a 26-year period. The vulnerability of each economy to natural disasters was estimated using a panel linear model, while resilience was estimated by employing a negative binomial panel regression and a difference-in-difference model. Natural disaster damage, related to physical damage and human loss, was shown to have a negative effect on regional economies. Regions with stronger economies prior to natural disasters have lower disaster losses than regions with weaker economic characteristics. More effort to improve regional economic conditions before natural disasters is necessary to minimize disaster loss. Lessons learned from the economic impacts of past natural disasters, in particular in tourism-based regions, can help regional planners and policy makers predict problems related to disasters and more effectively prepare for future events.
Purpose – The purpose of this paper is to explore why tourists continue to visit troubled and often violent nations, even when there is perceived risk. Tourism and terrorism reflect very different philosophies, but there are also some disturbing commonalities. Both need modern technology to be effective, both rely heavily on media management and both require the manipulation of perceptions and attitudes. Design/methodology/approach – The paper uses historical evidence to examine the rise and fall in world travel and tourism demand related to acts of terrorism. Findings – The paper observes that the Caribbean experienced a 13.5 percent decline in US visitors after the 9/11 terrorist attack in the USA and this led to the temporary loss of an estimated 365,000 jobs. Practical implications – The paper considers the fact that Jamaica suffers the equivalent of one 9/11 incident each week in terms of the percentage of the population killed by organized crime and gangs. It concludes that crime does not have the same effect as terrorism in terms of deterring tourists and that tourists demonstrate a willingness to visit countries where security risks are significantly higher than in their home country. Originality/value – The paper compares and contrasts the experience of 9/11 in New York with two bombings in Buenos Aires, and shows the remarkable extent to which even the experience of something as shocking as a terrorist attack is mediated through cultural values.
Although the tourism industry is increasingly globalising, empirical research on the accompanying foreign direct investment (FDI) is surprisingly lacking. Furthermore, the nexus of political risk, violent political unrest and tourism FDI has been relatively neglected. Using Egypt as a heuristic case study and adopting a qualitative methodology, this paper explores the question of how political risk and violent political unrest influence tourism FDI. Surprisingly, the results are not able to corroborate a clear relationship between the two. In contrast, these results indicate that the role of stability and security for tourism FDI in developing countries has largely been overestimated in the past. Copyright © 2010 John Wiley & Sons, Ltd.
This paper proposes a nonparametric test of causality in quantile. Zheng (1998) has proposed an idea to reduce the problem of testing a quantile restriction to a problem of testing a particular type of mean restriction in independent data. We extend Zheng s approach to the case of dependent data, particularly to the test of Granger causality in quantile. The proposed test statistic is shown to have a second-order degenerate U-statistic as a leading term under the null hypothesis. Using the result on the asymptotic normal distribution for a general second order degenerate U-statistics with weakly dependent data of Fan and Li (1996), we establish the asymptotic distribution of the test statistic for causality in quantile under ?-mixing (absolutely regular) process.
The hypothesis that political violence deters tourism is mainly based on case study evidence and a few quantitative studies confined to a small sample of countries. This is the first comprehensive, general quantitative test of the impact of various forms of political violence on tourist arrivals. We employ two estimation techniques: a fixed-effects panel estimator with contemporaneous effects only and a dynamic generalized method of moments estimator, which allows for lagged effects of political violence on tourism. In both model specifications, we find strong evidence that human rights violations, conflict and other politically motivated violent events negatively impact upon tourist arrivals. In a dynamic model, autocratic regimes, even if they do not resort to violence, have lower numbers of tourist arrivals than more democratic regimes. We also find evidence for intra-regional negative spill-over and cross-regional substitution effects.
The study analyzes the impact of uncertainty changes on the European travel and leisure sector stocks. We use economic policy uncertainty, geopolitical uncertainty, financial market uncertainty, and crude oil price uncertainty as uncertainty variables. We also analyze the extreme risk transmission from the uncertainty variables to the European travel and leisure sector stocks using the copula-based conditional Value-at-Risk (CoVaR) approach. The findings provide evidence of a significant impact of uncertainty variables on travel and leisure stocks mainly on the lower quantiles. The findings also indicate the significant downside and upside risk spillover effect from the extreme upside and downside movements in the uncertainty variables, respectively. The findings have implications for individual investors, portfolio managers, and institutional investors.
In this paper, we examine the impact of geopolitical risk on the demand for tourism service export. Using structural VAR model and U.S. monthly data from January 1999 to August 2020, we find that geopolitical risk has a negative and significant impact on tourism service exports. Our results reveal that, in the long-run, a one-standard-deviation shock in geopolitical risk shock explains about 12.6% of the variations in tourism net service exports.
This paper investigates how geopolitical risk (GPR) and economic policy uncertainty (EPU) impact the Chinese tourism stock return using the quantile‐on‐quantile method and causality‐in‐quantiles approach. Compared to the conventional linear regression model and the quantile regression, the quantile‐on‐quantile method can capture more factors of uncertainty and provide more accurate and detailed empirical results. Besides, we consider the upper quantile and lower quantile of stock return as the tourism peak season and off‐season respectively. Overall, the empirical results indicate GPR exerts a lasting negative effect on tourism stock return and that the negative effect of GPR at low quantile is more significant than that at high quantile. Besides, the Chinese categorical EPU influences both negatively and positively the stock returns at different distribution levels. And during tourist off‐season, the asymmetric phenomena between GPR, EPU and stock return are more obvious at lower quantiles and upper quantiles.
The impact of geopolitical risks on tourism has not received scholarly attention in the existing literature. Previous studies focus on the effects of terrorism, which is a subset of geopolitical risks. Our paper fills this gap and contributes to the literature by analyzing the vulnerability of four regional Travel and Leisure (T&L) industry stock indices to geopolitical risks. Employing traditional and quantile regression techniques, our results suggest a greater sensitivity of T&L stock returns to geopolitical risks at times the industry performs poor, except for Asia & Pacific index that is the most resilient to geopolitical events. We find that the negative effects of geopolitical risks are mostly driven by the threat of adverse geopolitical events only during period of falling T&L stock prices. However, the realization of adverse geopolitical events significantly influences T&L stocks at all times. The results provide potential insights and implications for investors and tourism stakeholders.
This longitudinal study examines the impact that terrorist attacks within a representative group of European countries can have on the tourism demand of a South European country with no record of terrorism attacks. In order to analyze the connections between terrorist attacks and tourists' arrivals, occurred between 2002 and the end of 2016, an Unrestricted Vector Autoregressive model was used for multivariate time series analysis. The main results show that terrorist attacks have a strong impact on tourist arrivals and confirm the existence of terrorism spillover, namely the substitution and generalization effects phenomena.
In examining the spillover effects of tourism receipts and the uncertainty-induced factors in Turkey, this study examines the spillover effects of tourism receipts and related sources of uncertainties from trade and political-related factors. Using the novelty of Diebold and Yilmaz (2012) "Better to give than to receive: Predictive directional measurement of volatility spillovers" approach, the study reveals that tourism receipts have a net spillover of 4.1%, thus indicating that the country's tourism industry received a significant shock. Spillover effects from other variables are observed, thus suggesting a hedging policy mechanism for the country's tourism sector.
In this article, we examine how the economic policy uncertainties and geopolitical risks influence the tourist arrivals in a developing country i.e. India. By resorting to the wavelet analysis, we find that the influence of geopolitical risks is stronger than that of economic policy uncertainties. Besides, geopolitical risks have long-run implications, whereas the economic policy uncertainties hold short-run consequences on tourist arrivals. Thus, the national security and peace protocol must be maintained by the Government, otherwise, the fall in tourist arrivals could impede the economic growth of a country in the long-run.
This paper examines the relationship between geopolitical risks (GPR) and corporate cash holdings in emerging countries, where such kind of risks are more relevant. Our sample consists of 166 hospitality companies from seven emerging economies (Malaysia, Mexico, Thailand, Turkey, Argentina, Brazil and China) for the period 2008–2017. The results show that geopolitical risks negatively affect cash holdings of hospitality firms, confirming the high dependence of hospitality business on geopolitical sways. We also test if our findings are relevant when considering ALFO strategy in hospitality companies. The findings are robust to alternative models and selection of sub-samples. This study adds to the incipient literature on hospitality companies' cash holdings determinants by considering GPR as an alternative measure of uncertainty in the hospitality industry. Consequently, this paper contributes to enhancing the understanding of hospitality firms' business characteristics, highly sensitive to geopolitical risks.
In this article, we investigate the impact of geopolitical risk (GPR) on international tourism demand in emerging economies. We have found that impact of GPR is not homogeneous for every country in our sample; for example, some countries are affected heavily by GPR and others are mostly immune to GPR shocks. In general, for countries that have attractive tourism destinations, the impact of GPR is minimal, indicating that if international tourists desperately want to go a destination, they do not take GPR seriously. In addition, the tsunami impact of GPR is not the same for all affected countries. For some countries, the GPR shocks have an impact within 2 to 3 months of its ‘first hit’, while for other countries, the impact is felt over longer periods.
This paper aims to analyze the impact of geopolitical risks measured by a new index of geopolitical risk (GPR) on inbound tourism. For this purpose, we use the fixed-effects and the least squares dummy variable corrected estimations for panel data of 18 countries for the period from 1995 to 2016. We find that geopolitical risks negatively affect inbound tourism. We also implement various robustness checks, such as introducing control variables, considering the lagged effect of the GPR, and utilizing different econometric techniques.
We present a monthly indicator of geopolitical risk based on a tally of newspaper articles covering geopolitical tensions, and examine its evolution and effects since 1985. The geopolitical risk (GPR) index spikes around the Gulf War, after 9/11, during the 2003 Iraq invasion, during the 2014 Russia-Ukraine crisis, and after the Paris terrorist attacks. High geopolitical risk leads to a decline in real activity, lower stock returns, and movements in capital flows away from emerging economies and towards advanced economies. When we decompose the index into threats and acts components, the adverse effects of geopolitical risk are mostly driven by the threat of adverse geopolitical events. Extending our index back to 1900, geopolitical risk rose dramatically during the World War I and World War II, was elevated in the early 1980s, and has drifted upward since the beginning of the 21st century.
While much significant research has been done to study the effects of terror attacks on stock markets, less is known about the response of exchange rates to terror attacks. We suggest a non-parametric causality-in-quantiles test to study whether (relative) terror attacks affect exchange-rate returns and volatility. Using data on the dollar-pound exchange rate to illustrate the test, we show that terror attacks mainly affect the lower and upper quantiles of the conditional distribution of exchange-rate returns, while misspecified (due to nonlinearity and structural breaks) linear Granger causality test show no evidence of predictability. Terror attacks also affect almost all quantiles of the conditional distribution of exchange-rate volatility (except the extreme upper-end), with the significance of the effect being particularly strong for the lower quantiles. The importance of terror attacks is shown to hold also under an alternative measure of volatility and for an important emerging-market exchange rate as well.
We use the k-th-order nonparametric causality test at monthly frequency over the period of 1985:1 to 2016:06 to analyze whether geopolitical risks can predict movements in stock returns and volatility of 24 global defense firms. The nonparametric approach controls for the existing misspecification of a linear framework of causality, and hence, the mild evidence of causality obtained under the standard Granger tests cannot be relied upon. When we apply the nonparametric test, we find that there is no evidence of predictability of stock returns of these defense companies emanating from the geopolitical risk measure. However, the geopolitical risk index does predict realized volatility in 50% of the companies. Our results indicate that while global geopolitical events over a period of time is less likely to predict returns, such global risks are more inclined in affecting future risk profile of defense firms.
Tourism in Kenya has been affected by a number of crises in the recent years, the most serious of which was the unrest following the disputed elections at the end of December 2007. The instability had a disastrous effect on international tourism arrivals in 2008 and it took around three years for the numbers to return to 2007 levels. This research investigates the management of the post-crisis recovery of the tourism sector from the perspective of Kenyan tour operators, using data collected during interviews in Nairobi in early 2011. Findings suggest that the measures taken to assist recovery were not perceived to be as effective as they might have been, and opportunities to strengthen the tourism sector were missed. The threat to the natural environment can be considered a slowly developing crisis, and minimising the pressures from tourism is identified as a major challenge, as is keeping the destination safe. It is concluded that a national crisis management structure led from the top is essential, and the involvement of the East African Community in some type of a crisis management role is unlikely for some time.
The present investigation examines the effect of the July 22nd, 2011 Oslo/Utøya massacres on short- and long-term risk perceptions and worries among tourists. Convenience samples of tourists to Norway rated the perceived risk regarding Norway as a destination and regarding terrorism occurring in Norway, as well as their worries about terrorism during their current trip to Norway. Data were collected in 2004, 2010, 2011 (before and after July 22nd), and in 2012. Results show that risk perceptions and worries are relatively low. Perceived risk remained unchanged from 2004 until 2011, and did not change immediately after the attacks. However in 2012 perceived risk for Norway as a destination and worries about terrorism declined. Possible explanations for these unexpected findings are being discussed.
Tourism has been encouraged in many of the world's poorer countries as a means of stimulating development. However, tourism is vulnerable to external shocks, which can damage a host country's economy, especially where reliance on tourism is high. This paper focuses on Bali, Indonesia where tranquillity was shattered by terrorist bombs in October 2002, and again in October 2005. It examines the impact of the 2002 bombings on the island's beach vendors, members of the informal sector who work at the margins of tourism. The UK's Department for International Development's (DFID) model of sustainable development is used as a guide to assess notional changes in vendor livelihoods and reveals the sharp reduction in their access to financial capital once tourism had collapsed. Fieldwork showed that livelihoods were sustained with difficulty after the terrorist attacks and that social capital played a major role in survival. Although visitor numbers to Bali are recovering, the research reveals significant changes in vendors' livelihood patterns. Social capital remains strong though it has changed in certain respects as a consequence of terrorist activity, one of the most negative changes being an increase in local religious tensions. The authors question the wisdom of encouraging tourism as a major vehicle for development without simultaneously promoting alternative income-generating opportunities to offer a safety net against external shocks to a vulnerable tourism industry.
This study examines a comprehensive data set of all terrorist activities that directly affected Americans between 1973 and 2003, exploring the reaction of hospitality stocks to these events. Hospitality stocks’ returns following terrorist events are well in excess of those experienced by the rest of the stock market, beating the market by 10 to 15 percent per annum. These results persist despite controls for the type of event, number of casualties, location of the event, changes in market risk, and resulting impacts on room demand and average daily rates. The most severe one hundred events, after an initial negative reaction, are followed by returns nearly four times larger than those of the average event. Findings are consistent with sentiment playing a substantial role in hospitality stock returns.
Since the pioneering work by Granger (1969), many authors have proposed tests of causality between economic time series. Most of them are concerned only with “linear causality in mean”, or if a series linearly affects the (conditional) mean of the other series. It is no doubt of primary interest, but dependence between series may be nonlinear, and/or not only through the conditional mean. Indeed conditional heteroskedastic models are widely studied recently. The purpose of this paper is to propose a nonparametric test for possibly nonlinear causality. Taking into account that dependence in higher order moments are becoming an important issue especially in financial time series, we also consider a test for causality up to the Kth conditional moment. Statistically, we can also view this test as a nonparametric omitted variable test in time series regression. A desirable property of the test is that it has nontrivial power against T1/2-local alternatives, where T is the sample size. Also, we can form a test statistic accordingly if we have some knowledge on the alternative hypothesis. Furthermore, we show that the test statistic includes most of the omitted variable test statistics as special cases asymptotically. The null asymptotic distribution is not normal, but we can easily calculate the critical regions by simulation. Monte Carlo experiments show that the proposed test has good size and power properties.
This study investigates the link between macro and non-macro explanatory factors and Chinese hotel stock returns. Macro variables include growth rates of industrial production and imports, discount rates, yield spread and inflation rate. In addition, growth rate of total foreign tourist arrivals (
Δ
TA
) was introduced as another critical macro factor that may affect Chinese hotel stock returns, considering a tremendous growth of tourism in China. Empirical results indicated that the impact of
Δ
TA
was positive, but insignificant. Thus, Chinese hotel stock returns were more sensitive to general macro variables. Non-macro events that could significantly impact Chinese hotel stock returns encompass financial crises, natural disasters, wars, terrorist attacks, political events, and sports mega-events. Discussions and conclusions are provided to guide hospitality investors.
Analyses of the costs and consequences of conflict usually focus on either civil wars or interstate conflict. The 9/11 attacks, however, have heightened interest regarding the costs of terrorism, a specific form of conflict in which violence is directed toward noncombatants or civilians who generally are not related to the political target of the perpetrating group. While terrorism can be seen as a specific tactic employed in internal and external conflicts, the effects of such violence have been studied separately. This article surveys the existing evidence of the costs of those terrorist acts that are perpetrated by nonstate parties or subnational groups, and discusses the various methodological issues involved. It differentiates between macroeconomic and microeconomic consequences of terrorism, and examines their consequences across different economies.
Testing for the nonstationarity hypothesis is important in tourism research. If a visitor arrivals series is nonstationary, the occurrence of a shock will have a permanent effect on the series. This research note tests the nonstationary hypothesis on the monthly data of visitor arrivals in Singapore from seven main source countries with Zivot and Andrews unit root test. This unit root test is used in this study because it allows for one endogenous break in the series. The obtained results suggest that each of these series is nonstationary, indicating that shocks to visitor arrivals in Singapore are permanent.
This study uses panel regression tests to examine the response of hotel performance to international tourism development and crisis events in Taiwan. Hotel performance measures are revenue (revenue per available room and occupancy rate), profitability (return on assets and return on equity) and stock performance. The crises were the earthquake on September 21, 1999 (the 9/21 earthquake), the terrorist attacks of September 11, 2001 in the US (the 9/11 terrorist attacks) and the outbreak of Severe Acute Respiratory Syndrome on April 22, 2003 (the SARS outbreak). This study makes four major contributions. First, test results confirm that international tourism development (ITD), proxied by the growth of total inbound tourist arrivals, has a more direct influence on hotel sales and profitability than it does on hotel stock performance. Second, this study identifies that the absence of a strong tie between ITD and hotel stock returns that was found in previous studies is due to the time-varying discount rate caused by investors’ changing expectations for the prospect of future cash flows from holding hotel stocks. Third, this study finds new evidence that while the poor performance of hotel stocks caused by the 9/21 earthquake and the 9/11 terrorist attacks was attributed to the loss of hotel sales revenue, the adverse effect of the SARS outbreak on hotel stock returns is attributed not only to decreased hotel sales revenue but also to the increased discount rate. Lastly, this study is the first to investigate whether the response of hotel stock returns to ITD depends on the state of economy and concludes that the response of hotel stock performance to ITD in business cycle contraction is statistically different from that in business cycle expansion. Further, although the influence of ITD on hotel stock performance is still irrelevant during expansion periods, ITD can significantly enhance hotel stock returns during contraction periods.
Terrorism and threats to national security are documented to have impacts on tourism demand. This paper focuses on the short-run impacts of the September 11 attacks in New York on tourist preferences for competing destinations in the Mediterranean and the Canary Islands. The proposed approach is a stated preference model based on two different samples taken at different points in time in relation to terrorist attacks. Results show that the attacks caused a shock to tourists’ utility, and a change in the image profile of destinations. Moreover, it was found that while some destinations experienced a strongly negative impact on their image and attractiveness, others were upgraded as a consequence of terror events.RésuméL’impact du terrorisme sur la demande touristique. Il est vérifié que le terrorisme et les menaces pour la sécurité nationale ont des impacts sur la demande touristique. Cet article porte sur les impacts à court terme des attentats du 11 septembre à New York sur les préférences des touristes pour des destinations en concurrence en Méditerranée et aux Canaries. L’approche est un modèle de préférence déclarée basé sur deux échantillons qui ont été pris à des moments différents par rapport aux attaques. Les résultats montrent un choc sur le modèle d’utilité des touristes et un changement sur le profile de l’image des destinations. En plus, certaines destinations ont subi un impact fortement négatif sur leur image et leur attrait, tandis que d’autres ont été revalorisées en conséquence des événements touristiques.
The main focus of this paper is to study empirically the impact of terrorism on the behavior of stock, bond and commodity markets. We consider terrorist events that took place in 25 countries over an 11-year time period and implement our analysis using different methods: an event-study approach, a non-parametric methodology, and a filtered GARCH–EVT approach. In addition, we compare the effect of terrorist attacks on financial markets with the impact of other extreme events such as financial crashes and natural catastrophes. The results of our analysis show that a non-parametric approach is the most appropriate method among the three for analyzing the impact of terrorism on financial markets. We demonstrate the robustness of this method when interest rates, equity market integration, spillover and contemporaneous effects are controlled. We show how the results of this approach can be used for investors’ portfolio diversification strategies against terrorism risk.
This paper assesses the impact of the September 11 terrorist attacks and its after-effects on U.S. airline demand. Using monthly time-series data from 1986 to 2003, we find that September 11 resulted in both a negative transitory shock of over 30% and an ongoing negative demand shock amounting to roughly 7.4% of pre-September 11 demand. This ongoing demand shock has yet to dissipate (as of November 2003) and cannot be explained by economic, seasonal, or other factors.
This paper presents a test of independence that can be applied to the estimated residuals of any time series model that can be transformed into a model driven by independent and identically distributed errors. The first order asymptotic distribution of the test statistic is independent of estimation error provided that the parameters of the model under test can be estimated [image omitted] -consistently. Because of this, our method can be used as a model selection tool and as a specification test. Widely used software1 written by Dechert and LeBaron can be used to implement the test. Also, this software is fast enough that the null distribution of our test statistic can be estimated with bootstrap methods. Our method can be viewed as a nonlinear analog of the Box-Pierce Q statistic used in ARIMA analysis.
Geopolitical encounters of tourism: a conceptual approach
- Gillena
Is Thailand’s Political Crisis Hurting Its Economy?
- B Tarrant
“Tourism and migration: New relationships between production and consumption”
- William
The Fight Against Terrorism: Cost of Non
- Rand
Billions wiped off European travel shares after Paris attacks. The Guardian
- G Wearden
- K Allen