How geopolitical risk affects the market performance of airline stocks?

Given the susceptibility of the aviation industry to events such as terrorist attacks and wars, geopolitical risk must be carefully considered. The study employs the quantile connectedness approach based on sample data from January 2014 to March 2024 to evaluate the dynamic spillover effects between geopolitical risk (GPR) and airline stock returns, further revealing the impact of geopolitical tensions on both normal and extreme market conditions. The research finds that connectivity is especially accentuated during turbulent market environments and is intensified during geopolitical events such as COVID-19 and the Russia-Ukraine conflict. Furthermore, dynamic analysis further demonstrates that, compared to its peripheral role in normal markets, the relationship between GPR and airline stocks becomes more pronounced during turbulent market environments, and at certain times, with GPR transforming into an emitter at certain points in time. Consequently, the government can formulate policies against geopolitical shocks and ensure the stability of the aviation sector, while investors should carefully assess the associated risks and prudently allocate their investments in airline stocks.