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The Impact of China on Stock Returns and Volatility in the Taiwan Tourism Industry

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  • Chia-Lin Chang
  • Hui-Kuang Hsu
  • Michael McAleer

    ()
    (University of Canterbury)

Abstract

This paper investigates the stock returns and volatility size effects for firm performance in the Taiwan tourism industry, especially the impacts arising from the tourism policy reform that allowed mainland Chinese tourists to travel to Taiwan. Four conditional univariate GARCH models are used to estimate the volatility in the stock indexes for large and small firms in Taiwan. Daily data from 30 November 2001 to 27 February 2013 are used, which covers the period of Cross-Straits tension between China and Taiwan. The full sample period is divided into two subsamples, namely prior to and after the policy reform that encouraged Chinese tourists to Taiwan. The empirical findings confirm that there have been important changes in the volatility size effects for firm performance, regardless of firm size and estimation period. Furthermore, the risk premium reveals insignificant estimates in both time periods, while asymmetric effects are found to exist only for large firms after the policy reform. The empirical findings should be useful for financial managers and policy analysts as it provides insight into the magnitude of the volatility size effects for firm performance, how it can vary with firm size, the impacts arising from the industry policy reform, and how firm size is related to financial risk management strategy.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1327.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 13/27.

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Length: 33 pages
Date of creation: 13 Aug 2013
Date of revision:
Handle: RePEc:cbt:econwp:13/27

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Keywords: Tourism; firm size; stock returns; conditional volatility models; volatility size effects; asymmetry; tourism policy reform;

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  1. Chia-Lin Chang & Thanchanok Khamkaew & Michael McAleer, 2010. "IV Estimation of a Panel Threshold Model of Tourism Specialization and Economic Development," CIRJE F-Series CIRJE-F-732, CIRJE, Faculty of Economics, University of Tokyo.
  2. Hammoudeh, Shawkat & Araújo Santos, Paulo & Al-Hassan, Abdullah, 2013. "Downside risk management and VaR-based optimal portfolios for precious metals, oil and stocks," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 318-334.
  3. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  4. Chia-Lin Chang & Hui-Kuang Hsu & Michael McAleer, 2013. "Is Small Beautiful? Size Effects of Volatility Spillovers for Firm Performance and Exchange Rates in Tourism," Documentos de Trabajo del ICAE 2013-01, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  5. Roengchai Tansuchat & Chia-Lin Chang & Michael McAleer, 2010. "Conditional Correlations and Volatility Spillovers Between Crude Oil and Stock Index Returns," Working Papers in Economics 10/04, University of Canterbury, Department of Economics and Finance.
  6. Chia-Lin Chang & Thanchanok Khamkaew & Michael McAleer, 2009. "A Panel Threshold Model of Tourism Specialization and Economic Development," CIRJE F-Series CIRJE-F-685, CIRJE, Faculty of Economics, University of Tokyo.
  7. McAleer, Michael & Chan, Felix & Marinova, Dora, 2007. "An econometric analysis of asymmetric volatility: Theory and application to patents," Journal of Econometrics, Elsevier, vol. 139(2), pages 259-284, August.
  8. Tufano, Peter, 1996. " Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 51(4), pages 1097-1137, September.
  9. Shawkat Hammoudeh & Michael McAleer, 2012. "Risk Management and Financial Derivatives: An Overview," Documentos de Trabajo del ICAE 2012-08, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  10. Shiqing Ling & Michael McAleer, 2001. "Asymptotic Theory for a Vector ARMA-GARCH Model," ISER Discussion Paper 0549, Institute of Social and Economic Research, Osaka University.
  11. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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  14. Gabriel Hawawini & Venkat Subramanian & Paul Verdin, 2003. "Is performance driven by industry or firm-specific factors? A new look at the evidence," ULB Institutional Repository 2013/14188, ULB -- Universite Libre de Bruxelles.
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  17. repec:cup:cbooks:9780521694681 is not listed on IDEAS
  18. Chia-Lin Chang & Biing-Wen Huang & Meng-Gu Chen & Michael McAleer, 2009. "Modelling the Asymmetric Volatility in Hog Prices in Taiwan: The Impact of Joining the WTO," CIRJE F-Series CIRJE-F-642, CIRJE, Faculty of Economics, University of Tokyo.
  19. Mehran, Hamid, 1995. "Executive compensation structure, ownership, and firm performance," Journal of Financial Economics, Elsevier, vol. 38(2), pages 163-184, June.
  20. Chia-Lin Chang & Hui-Kuang Hsu & Michael McAleer, 2013. "Is Small Beautiful? Size Effects of Volatility Spillovers for Firm Performance and Exchange Rates in Tourism," Tinbergen Institute Discussion Papers 13-008/III, Tinbergen Institute.
  21. Gerald D. Gay & Jouahn Nam, 1998. "The Underinvestment Problem and Corporate Derivatives Use," Financial Management, Financial Management Association, vol. 27(4), Winter.
  22. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March.
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