International Demand and Country Risk Analysis
The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development
Volatility in monthly international tourist arrivals is defined as the squared deviation from the mean monthly international tourist arrivals. Consequently, volatility is directly related to the (possibly time-varying) standard deviation, which is a common measure of risk in finance. The conditional volatility in two data series are analysed in the monograph, specifically monthly international tourist arrivals to seven Small Island Tourism Economies (SITEs), namely Barbados, Cyprus, Dominica, Fiji, Maldives, Malta and Seychelles, and monthly country risk returns for six separate SITEs, namely the Bahamas, Cyprus, Dominican Republic, Haiti, Jamaica, and Malta. Monthly international tourist arrivals and country risk returns exhibit distinct seasonal patterns and positive trends. Moreover, they have increased rapidly for extended periods, and stabilised thereafter. Most importantly, there have been increasing variations in monthly international tourist arrivals and country risk returns in SITEs for extended periods, with subsequently dampened variations. Such fluctuating variations over time are interpreted as the conditional volatility in tourist arrivals and risk returns, respectively, and can be modelled using modern financial econometric time series techniques. There are several reasons why we need to model and forecast the uncertainty or volatility in international tourist arrivals. First, governments as well as tour operators need to examine the underlying uncertainty that is intrinsic to the total numbers, as well as in the growth rate, of monthly international tourist arrivals, and country risk ratings and risk returns. Second, in the literature it is widely believed that the forecast confidence intervals are time varying. Therefore, more accurate confidence intervals...