Impact of the 9/11 Terrorist Attacks on the Return and Risk of Airline Stocks

Abstract

This study examined the impact of the 9/11 terrorist attacks on the return and risk of airline stocks traded on US stock markets. It compared the returns, total risk and systematic risk for these stocks during the 60 weeks before and 60 weeks after the 9/11 events. A one-way paired t-test was conducted to determine whether the stock returns and relevant risks were significantly different in the pre- and post-9/11 periods. The results show that while the average weekly return of the airline stocks did not change significantly after the 9/11 events, their systematic and total risks increased significantly regardless of firm size. The findings suggest that although airlines cannot do much about high financial leverage at present, they may still lower their operating leverage by cutting payroll expenses and hedging against fuel price fluctuation. A lower operating leverage should help airlines improve their stock performance in terms of both return and risk.