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Analysis of long-run benefits from international equity diversification between Taiwan and its major European trading partners: an empirical note

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Author Info
Tsangyao Chang
Chien-Chung Nieh
Ching-Chun Wei
Abstract

This paper employs four cointegration test approaches, PO, HI, JJ and KSS, to test for pairwise long-run equilibrium relationships between Taiwan's stock price index and each of the stock price indexes of four European markets -- French, German, Dutch, and British stock markets. The results from these four tests are robust and clearly consistent in suggesting that the Taiwan stock market is not pairwise cointegrated with the four European stock markets. This provides strong evidence that there exist long-run benefits for Taiwan investors diversifying in the equity markets of Taiwan's major European trading partners, France, Germany, Holland, and the UK, over the sample period considered from 6 January 1998 to 30 May 2002. These findings could be valuable to Taiwan individual investors and financial institutions holding long-run investment portfolios in the equity markets of France, Germany, Holland, and the UK.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 19 (October)
Pages: 2277-2283
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Handle: RePEc:taf:applec:v:38:y:2006:i:19:p:2277-2283

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  2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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  4. Kasa, Kenneth, 1992. "Common stochastic trends in international stock markets," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 95-124, February. [Downloadable!] (restricted)
  5. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation, Yale University, revised Sep 1987. [Downloadable!]
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  6. George Kapetanios & Yongcheol Shin & Andy Snell, 2003. "Testing for Cointegration in Nonlinear STAR Error Correction Models," Working Papers 497, Queen Mary, University of London, Department of Economics. [Downloadable!]
  7. Kanas, Angelos, 1998. "Long-Run Benefits from International Equity Diversification: A Note on the Canadian Evidence," Applied Economics Letters, Taylor and Francis Journals, vol. 5(10), pages 659-63, October. [Downloadable!] (restricted)
  8. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Taylor, Mark P & Tonks, Ian, 1989. "The Internationalisation of Stock Markets and the Abolition of U.K. Exchange Control," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 332-36, May. [Downloadable!] (restricted)
  10. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178. [Downloadable!] (restricted)
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  11. Kanas, Angelos, 1999. "A Note on the Long-Run Benefits from International Equity Diversification for a UK Investor Diversifying in the US Equity Market," Applied Economics Letters, Taylor and Francis Journals, vol. 6(1), pages 49-53, January. [Downloadable!] (restricted)
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