Impact of Terrorism on Hospitality Stocks and the Role of Investor Sentiment

Abstract

This study examines a comprehensive data set of all terrorist activities that directly affected Americans between 1973 and 2003, exploring the reaction of hospitality stocks to these events. Hospitality stocks’ returns following terrorist events are well in excess of those experienced by the rest of the stock market, beating the market by 10 to 15 percent per annum. These results persist despite controls for the type of event, number of casualties, location of the event, changes in market risk, and resulting impacts on room demand and average daily rates. The most severe one hundred events, after an initial negative reaction, are followed by returns nearly four times larger than those of the average event. Findings are consistent with sentiment playing a substantial role in hospitality stock returns.