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Investment Strategy Based on Aviation Accidents: Are there abnormal returns?

Author(s): Marcos Rosa Costa | Fernando Caio Galdi | Silvania Neris Nossa

Journal: Revista de Educação e Pesquisa em Contabilidade
ISSN 1981-8610

Volume: 7;
Issue: 2 English;
Start page: 177;
Date: 2013;
Original page

Keywords: Aviation accidents | event study | investment strategy | abnormal returns | normal returns.

This article investigates whether an investment strategy based on aviation accidents can generate abnormal returns. We performed an event study considering all the aviation accidents with more than 10 fatalities in the period from 1998 to 2009 and the stock market performance of the respective airlines and aircraft manufacturers in the days after the event. The tests performed were based on the model of Campbell, Lo & MacKinlay (1997) for definition of abnormal returns, by means of linear regression between the firms’ stock returns and the return of a market portfolio used as a benchmark. This enabled projecting the expected future returns of the airlines and aircraft makers, for comparison with the observed returns after each event. The result obtained suggests that an investment strategy based on aviation accidents is feasible because abnormal returns can be obtained in the period immediately following an aviation disaster.
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