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Influence of External Factors on the Taiwan Stock Exchange

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  • Chin-Wen Huang

Abstract

Due to the small market size and the low trading volume, emerging markets are, in general, shallow and easily affected by external factors such as the capital flows from foreign portfolio investment and the stock market fluctuations of their major trading partners. This study attempts to investigate how foreign portfolio investment and the trading partner’s equity market affect the local stock market and whether such impacts are persistent through time. Adopting the GARCH-EVT-Copula approach, this study takes the Taiwan Stock Exchange as an example to examine (1) the time varying dependencies between the changes in the Taiwan Stock Exchange Capitalization Weighted Stock Index and the changes in foreign portfolio investment volume, and (2) the time varying dependencies between the changes in Taiwan Stock Exchange Capitalization Weighted Stock Index and the changes of the China A-Shares market aggregation index. The empirical results indicated that although foreign portfolio investment started as a strong force in moving the market, it became less influential during the financial crisis period. The stock movements from an emerging market’s top trading partner, however, become more influential as the international trading volume between the two increased and did not weaken even during the financial crisis period.

Suggested Citation

  • Chin-Wen Huang, 2014. "Influence of External Factors on the Taiwan Stock Exchange," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(4), pages 109-120.
    • Handle: RePEc:ibf:ijbfre:v:8:y:2014:i:4:p:109-120
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    References listed on IDEAS

    as
    1. Chun-Pin Hsu, 2013. "The Influence of Foreign Portfolio Investment on Domestic Stock Returns: Evidence from Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(3), pages 1-11.
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    6. Chun-Pin Hsu & Chun-Wen Huang & Alfred Ntoko, 2013. "Does Foreign Investment Worsen the Domestic Stock Market During a Financial Crisis? Evidence from Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(4), pages 1-12.
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    Keywords

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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