Identifying macroeconomic risk factors in Australian airline companies

![CDATA[This paper examines the inter-temporal relationship between the return in Airline companies in Australia and macroeconomic risk factors - foreign exchange risk, oil price shocks and interest rate risk. A multi-factor asset pricing approach is taken to examine the intertemporal relationship between stock return of the airline companies and macroeconomic risk factors. The study employs EGARCH-M methodology to model the stock return and conditional variance of the airline companies simultaneously. This study also focuses on the asymmetric aspect of the volatility. To facilitate the study, this study calculates the conditional volatility of oil price and foreign exchange return. For foreign exchange rate risk, we consider orthogonal component of innovations in the exchange rate. A rise in oil price decreases returns in the airline companies and an increase in oil price return volatility increases stock return volatility. This study is of great importance to the market participants to understand the sensitivity of the airline companies to the economic factors.]]