Investment sensitivity to market uncertainty in the travel and tourism sector

Raising capital is critical for the future expansion of travel and tourism businesses which have been adversely impacted by the COVID-19 pandemic. Investors sold their travel and tourism stocks below true value due to falling earnings during the pandemic. This study compares the sensitivity of stocks in different sectors to uncertainty when they are aggregated into different exchange-traded funds (ETFs). This reduces the extent of firm-specific peculiarities arising from market overreactions to news, mergers and acquisitions through time. Although previous studies have highlighted the effect of uncertainty on the financial decisions of travel and tourism firms, this study identifies a ‘fear-triggering point’ in the VIX index above which travel and tourism ETFs enter the state of uncertainty. This study has thus important implications for raising capital and financing tourism businesses in the US equity market, particularly during heightened uncertainty.