Effects of shifts in monetary policy on hospitality stock performance

Abstract

This study investigates the effects of changes in monetary policy on the stock performance of hospitality firms (airlines, hotels, restaurants and tourism firms) in Hong Kong. Changes in the monetary policy environment are measured by changes in the discount rate. Among the four hospitality sectors, hotel and tourism stocks exhibit a higher mean return and reward-to-risk ratio during expansive monetary periods. Regression test results also support the contention that different monetary policy circumstances have significant influences on the hotel and tourism stock performance. Lastly, a market timing investment strategy is proposed for hospitality stock investors to allocate their portfolios between hospitality stocks and risk-free assets according to movements in monetary policy environments. Following this market timing investment strategy, hospitality stock investors can significantly improve investment performance by achieving higher returns and lower risk.