Sentiment, Confidence and Uncertainty: The Case of Tourism and Leisure Stocks

Abstract

This study tests the possible effect of sentiment on the performance of the tourism and leisure (T&L) industry. Using a portfolio consisting of U.S. publicly traded firms, we reveal that the Consumer Sentiment Index (CSI) and the Consumer Confidence Index (CCI) are perhaps better candidates for capturing a contemporaneous relationship or making predictions about the performance of the T&L stocks than the Economic Policy Uncertainty Index (EPU) or the Volatility Index (VIX). Macroeconomic variables have a limited contribution to the establishment of contemporaneous relationships and none of them is suitable for making predictions, which underscores the importance of addressing and paying attention to the issue of sentiment. Our results are robust using different empirical procedures such as ordinary least squares (OLS), GARCH, and quantile regressions. The findings may have important implications for policy makers at both the state and firm levels in light of increased uncertainty periods such as the ongoing coronavirus epidemic.

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