Tourism stock performance and macro factors

Abstract

Tourism has played a significant role in the global economy in terms of the production of goods and services, income and employment generation prior to the recent global recession. In 2007, the world's travel and tourism industry contributed (directly and indirectly) US$5,390 billion (or 10.4%) to global Gross Domestic Product, and the industry generated more than 231 million jobs or 8.3% of total world employment (World Travel & Tourism Council 2008). The real average annual growth of world tourism has exceeded the global economic growth during the period 2004-2007. In 2008-2009, the challenging economic environment and stock market volatility have a negative impact on tourism in wealth generation, job creation and economic diversification for many economies worldwide. Tourism is arguably the largest industry in NZ. In 2007, the tourism industry contributed 9.1% (NZ$14.1 billion) to the country's gross domestic product and generated about 10% of full-time employment (Statistics New Zealand, 2008). The "100% Pure" branding has been a very successful marketing campaign, especially for adventure tourism. The global recession and swine flu have adversely affected international visitor arrivals to New Zealand. Furthermore, the Ministry of Tourism has revised down tourist arrival growth forecast from 4.0 percent per annum to 2.5 percent per annum for the next seven years. The purpose of this paper is to examine the relationship between hospitality-tourism stock prices and macroeconomic factors in New Zealand using cointegration analysis and Vector Error Correction Model (VECM). The former establishes the long run realtionships between stock prices and macroeconomic factors and the latter identifies the short run dynamics between prices and macroeconomic varaibles. Interestingly, the specification of VECM in this context is also closely related to empirical models implied by the Asset Pricing Theory (APT). Therefore, the results from this paper also provide valuable insight into the pricing of firms where the main values come from the service that they provide rather than their physical assets. The results provided empirical evidence on the existence of relationships between the stock returns of tourism companies and macro-economic variables. This should provide invaluable insight for governmental policy makers when designing monetary and fiscal policies as well as executives from these individual firms to forecast the stock returns of their companies.