The Fortunes of War and Aircraft Manufacturer Stock Returns: The Case of the Korean War

We examine the profitability of U.S. aircraft manufacturers, their stock returns over the sample period, and their stock reaction to important events during the Korean War. Aircraft stocks responded favorably to events implying a continuation of the war and negatively to events implying a cessation of hostilities. Furthermore, their accounting profits improved substantially relative to pre-war years and to the median of the largest 500 U.S. corporations. This increase may explain why annualized returns for aircraft firms were greater than the overall market during the war. However, these higher returns were not “excessive” based on the Carhart four-factor alpha.