From pandemic turbulence to recovery: a dynamic assessment of return and volatility spillovers in tourism finance

Abstract This study investigates the return and volatility connectedness among major tourism stock indices and risk-related indices during the pre-COVID-19, COVID-19, and post-COVID-19 periods using a time-varying parameter vector autoregression (TVP-VAR) model. Specifically, a connectedness network is built for each period to compare the nature of connectedness over the three examined periods. The findings reveal significant temporal variations in connectedness, with moderate levels before the pandemic, a sharp surge during COVID-19 driven by increased uncertainty, and partial normalization afterward. While volatility connectedness declines more noticeably in the recovery, return spillovers remain persistently high. Notably, global and American tourism indices are consistent return transmitters, whereas systemic risk measures play a larger role in volatility transmission. Importantly, American tourism stocks are intertwined with global tourism stocks, exhibiting synchronized movement over the periods. These findings highlight how global shocks reshape the transmission of risks in the tourism sector and underscore the need for strategies that address both short-term market reactions and longer-term uncertainty.