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

This paper compares the impact of crude oil price shocks on stock returns for aviation, land transportation, and maritime companies in Taiwan, using daily data on average crude oil prices for 16 substantial event-days from the beginning of January 2010 to the end of December 2014. The study computes abnormal and cumulative abnormal returns for 208 firm-year observations in the transportation industry at the time of the oil price change using event study methodology. The results show a greater market response in the aviation industry, where fuel oil accounts for more than 40% of operating costs, than in the maritime industry and land transportation, where fuel oil accounts for only 18% to 20% of the average costs. Aviation companies, therefore, have larger abnormal returns on oil price decline days. The analysis results do not show significantly negative abnormal returns for transportation companies when oil prices significantly increase. In spite of the increases, consumers still need to travel by airline, bus, and boat. Our results also indicate that the market response is much less obvious in the maritime industry than in the aviation industry, which implies that the aviation industry is more sensitive to oil price changes. The results further show that the extent of abnormal returns on the event-days is larger in the container shipping industry than in the bulk shipping carrier industry.