Evaluating the impact of multiple uncertainty shocks on China's airline stocks volatility: A novel joint quantile perspective

Abstract

This study proposes a new joint quantile impulse response function (jQIRF) and applies that function to investigate the impact of multiple uncertainty shocks on the volatility of China's airline industry. The jQIRF not only allows one to examine the joint impact of multiple factors on the target variable; the impact of these factors on specific quantiles or states of the target variable can also be examined. The empirical results show that, compared to traditional IRF, the proposed jQIRF successfully reveals the positive impact of multiple uncertainties on the volatility of the airline industry and obtains a narrower confidence interval for IRF. The jQIRF also successfully corrects the overestimation bias caused by simple aggregation in generalized IRF. In addition, empirical results at different quantiles show the existence of a “leverage effect” in the impact of uncertainty on airline volatility. This means that, in more volatile market environments, the positive joint impact of uncertainties is stronger. However, research that has focused on individual airline stocks indicates that the airlines appear to be capable of implementing measures to stabilize stock volatility, thereby mitigating the negative impact of uncertainties on the airline industry. Overall, the proposed jQIRF and empirical conclusions in this paper help to more accurately assess the impact of multiple factors on the airline industry from a joint perspective. This ability is beneficial for both policymakers and investors.