Tourism uncertainty and the behaviour of travel and leisure stocks in Europe, the UK and the USA

Purpose This study investigates whether tourism uncertainty predicts the behaviour of travel and leisure (T&L) stocks in Europe, the United Kingdom, and the United States of America. Specifically, it examines the predictive role of the Tourism Uncertainty Index for realised volatility and risk premia while assessing whether tourism uncertainty provides additional forecasting information beyond geopolitical risk. Design/methodology/approach The study uses the Westerlund–Narayan feasible generalised least squares (FGLS) predictability framework, which accounts for persistence, endogeneity and conditional heteroskedasticity. The study conducts both in-sample predictability and out-of-sample forecasting analyses, employing the Clark–West test to evaluate forecast improvements. Tourism uncertainty is examined alongside geopolitical risk for the UK, Europe, the USA and additional regional market classifications. Findings Our findings show that tourism uncertainty significantly and increasingly predicts realised volatility and risk premia in Europe and, to a lesser extent, in the UK, indicating that tourism-specific uncertainty may be priced differently across these markets. Out-of-sample results show that tourism uncertainty consistently improves volatility forecasts and enhances risk-premia forecasts, particularly for Europe and the USA, beyond the information contained in geopolitical risk. Originality/value The study is among the first to examine the newly developed Tourism Uncertainty Index as a predictor of tourism-related financial markets. It extends existing research by jointly analysing volatility and risk premia, integrating in-sample and out-of-sample forecasting frameworks and demonstrating that sector-specific tourism uncertainty provides incremental predictive information beyond conventional geopolitical risk measures, with important implications for investors, portfolio managers and policymakers.