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Is Small Beautiful? Size Effects of Volatility Spillovers for Firm Performance and Exchange Rates in Tourism

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Author Info

  • Chia-Lin Chang

    ()
    (Department of Applied Economics, Department of Finance, National Chung Hsing University Taichung, Taiwan)

  • Hui-Kuang Hsu

    (Department of Finance and Banking National Pingtung Institute of Commerce, Taiwan)

  • Michael McAleer

    (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute, The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of Economic Research, Kyoto University.)

Abstract

This paper examines the size effects of volatility spillovers for firm performance and exchange rates with asymmetry in the Taiwan tourism industry. The analysis is based on two conditional multivariate models, BEKK-AGARCH and VARMA-AGARCH, in the volatility specification. Daily data from 1 July 2008 to 29 June 2012 for 999 firms are used, which covers the Global Financial Crisis. The empirical findings indicate that there are size effects on volatility spillovers from the exchange rate to firm performance. Specifically, the risk for firm size has different effects from the three leading tourism sources to Taiwan, namely USA, Japan, and China. Furthermore, all the return series reveal quite high volatility spillovers (at over sixty percent) with a one-period lag. The empirical results show a negative correlation between exchange rate returns and stock returns. However, the asymmetric effect of the shock is ambiguous, owing to conflicts in the significance and signs of the asymmetry effect in the two estimated multivariate GARCH models. The empirical findings provide financial managers with a better understanding of how firm size is related to financial performance, risk and portfolio management strategies that can be used in practice.

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Bibliographic Info

Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales in its series Documentos del Instituto Complutense de Análisis Económico with number 2013-01.

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Length: 29 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:ucm:doicae:1301

Note: For financial support, the first author is most grateful to the National Science Council, Taiwan, and the third author wishes to acknowledge the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science.
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Keywords: Tourism; Size effects; Small-firm effects; Financial performance; Spillover effects; MGARCH; VARMA; BEKK.;

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References

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  1. Massimiliano Caporin & Michael McAleer, 2012. "Do We Really Need Both Bekk And Dcc? A Tale Of Two Multivariate Garch Models," Journal of Economic Surveys, Wiley Blackwell, vol. 26(4), pages 736-751, 09.
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  5. Chia-Lin Chang & Michael Mcaleer, 2012. "Aggregation, Heterogeneous Autoregression And Volatility Of Daily International Tourist Arrivals And Exchange Rates," The Japanese Economic Review, Japanese Economic Association, vol. 63(3), pages 397-419, 09.
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Citations

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Cited by:
  1. Chia-Lin Chang & David Allen & Michael McAleer, 2013. "Recent Developments in Financial Economics and Econometrics: An Overview," Working Papers in Economics 13/06, University of Canterbury, Department of Economics and Finance.
  2. Chang, C-L. & Hsu, H-K. & McAleer, M.J., 2013. "The Impact of China on Stock Returns and Volatility in the Taiwan Tourism Industry," Econometric Institute Research Papers EI 2013-26, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  3. Chia-Lin Chang & David Allen & Michael McAleer, 2013. "Recent Developments in Financial Economics and Econometrics: An Overview," Tinbergen Institute Discussion Papers 13-021/III, Tinbergen Institute.

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