Quantile Frequency Dependence between Airline Stocks and Oil Prices

This paper explores the intricate relationship between oil prices and airline stock returns, considering different time horizons and market conditions. Utilizing the quantile spectral coherency and quantile frequency connectedness model, we examine a comprehensive dataset spanning notable financial events including the Global Financial Crisis, COVID-19, and Russia-Ukraine war. Our quantile coherency analyses reveal that the relationship between oil prices and airline stock returns is not consistent and varies across different time horizons and market conditions (bearish, normal, bullish). This suggests that airline stocks have the potential to act as hedging and diversification instruments against oil prices, but their effectiveness varies depending on the time horizon and quantile. The quantile frequency connectedness analyses highlight strong interconnections between airline stocks and oil market at the extreme quantiles, with slower shock dissipation, particularly at the lower quantile. Our study also emphasizes the pronounced impact of COVID-19 on the relationship compared to other notable events, and identifies factors influencing the quantile frequency connectedness, such as oil market volatility, the US dollar strength, and economic policy factors. These findings offer valuable insights for stakeholders, aiding in risk management strategies and investment decisions