Market Reactions to Oil Price Changes in the Taiwan’s Transportation Industry

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Bi-Huei Tsai
Pei-Ju Chen


This paper compares the impact of crude oil price shocks on stock returns of maritime industry among the aviation, land transportation and maritime companies in Taiwan. By using daily data on average crude oil prices of West Texas Intermediate, Brent, Dubai and Amman from the beginning of January 2010 to the end of December 2014. The increases (decreases) of daily oil prices up to 4% are regarded as substantial oil crude change events and summarize 16 event days in our research. This study computes abnormal returns and cumulative abnormal returns for 208 firm-year observations in the transportation industry at the time of the oil price change using the event study methodology. The results show the greater market response in the aviation industry than the maritime industry. Fuel oil accounted for more than 40% of operating costs for the aviation industry, while maritime companies and land shipment companies account for only 18% to 20% of the average cost of fuel. Consequently, aviation companies have larger abnormal returns on oil price decline days. On the other hand, the results do not show significantly negative abnormal returns of transportation companies when oil prices significantly increase. Because the demand elasticity of oil is small, consumers still need to take airlines, bus and boats in spite of oil price increase. When oil prices increases, there is no significant decline of the abnormal returns of transportation companies. In addition, the market response is much less obvious in the maritime industry than the aviation industry. It implies that the aviation industry are more sensitive to oil price changes. Finally, the results show that the extent of abnormal returns are larger in the container shipping industry than that in the bulk shipping carriers industry on the event days of oil price changes.

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