Examination of the Risk Spillover Among the European Tourism and Hospitality Sectors: How COVID-19 Exerted Its Influence in Its Era?

This paper explores the effects of COVID-19 pandemic-related uncertainty on the European tourism subsectors, including airlines, hotels, and restaurants. Daily returns connectedness quantifies risk-sharing patterns in the tourism and hospitality industry and links them to measures of COVID-19-related uncertainty. The results suggest that while COVID-19 affects the hospitality and tourism industry return connectedness of companies within their respective sectors, those convergent effects are stronger during the relatively normal market regimes of the pandemic period. Further, airlines seem to be affected the most across all market regimes, while restaurants seem to be less affected due to their ability to adjust their operations during the COVID-19 crisis. Supply shocks related to oil prices are associated with higher return convergence among companies within the hotel and airline sectors under the euphoric market regimes. Supply shocks related to economic policy-related uncertainty seem to be associated with increased return divergence within the companies of each tourism sector across all market regimes. These observations could guide policymakers and investors in shaping more informed and timely decisions.