COVID-19, Financial Stress, and the Time-Varying Beta of Airlines

This paper empirically investigates the effects of the COVID-19 pandemic on the time-varying beta of 20 international airlines. An Investigation is conducted using daily data (2014-2023) and the BEKK GARCH model is applied to create the time-varying betas. Non-linear asymmetric autoregressive distributed lag (NARDL) model has been employed to test the effect of the pandemic on the betas. Results show ample effects of the pandemic and the financial stress created by the pandemic on the airlines’ beta. The individual airline’s volatility imposes a larger effect than the market volatility does. These results are stronger for European and Asian airlines. Strong evidence of financial stress affecting the beta. The financial stress results are the strongest for the US airlines and the weakest for European airlines. These results may have implications for investors who are interested in portfolio risk management