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Understanding mispricing in the travel and leisure industry

journal contribution
posted on 2023-09-26, 00:56 authored by PK Narayan, Susan SharmaSusan Sharma
In this paper, we show that the travel and leisure industry prices for 18 countries cannot be explained by conventional market risk factors. We, in other words, document significant evidence of mispricing, which increased exponentially due to the COVID-19 pandemic. We empirically show that COVID-19 related news, led by travel-related news, and COVID-19 support indices influenced industry mispricing. Trading on this mispricing is found to be economically significant for investors, who, by buying when prices are undervalued and selling when overvalued, can make annualized profits in the 3.11–25.02% range, depending on the country. These results are robust not only to different risk factors and subsamples, but also to the COVID-19 pandemic. Our findings have implications for travel industry stakeholders, policy makers, and investors.

History

Journal

International Review of Financial Analysis

Volume

90

Article number

102869

Pagination

1-11

Location

Amsterdam, The Netherlands

ISSN

1057-5219

eISSN

1873-8079

Language

eng

Publication classification

C1 Refereed article in a scholarly journal

Publisher

Elsevier