Geopolitical risks and airlines stock return — Implications to the financial stability of European airlines

This study utilizes a time-varying Granger causality test to investigate the causal relationship between geopolitical risks and stock return of main carriers in Europe. While the overall estimations from the entire dataset reveal limited evidence supporting causality between these variables, the rolling-window bootstrapping Granger causality test presents a dynamic pattern that a time-varying causality running from geopolitical risks to airline stock returns. However, within this fluctuating analytical framework, airline stock returns fail to reliably predict geopolitical risks. Finally, we offer significant policy implications to the financial stability of European airlines. • The relationship between geopolitical risks and airline stock returns is analysed. • No overall causality is found between the two variables in the full-sample estimations. • The rolling-window analysis reveals a time-varying causality from geopolitical risks to airline stock returns. • Limited evidence suggests a one-way causality from airline stock returns to geopolitical risks.