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The Role of US Variables in Long-Run and Short-Run Taiwan Stock Volatility

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  • Shih-Wei Chao

Abstract

This article uses the GARCH-MIDAS model to decompose Taiwan stock volatility and studies the role of US economic variables in each component. The full-sample results indicate that the additional explanatory information of US variables is contributed mostly by stock market measures, and the link between short-run Taiwan and US stock volatility is particularly evident. The out-of-sample results suggest that the in-sample significant US variables lead to slightly smaller forecast errors for both volatility components, but the improvements are very limited. The analysis also extends to Electronics and Non-Electronics subindices, a range-based volatility estimator and a different volatility decomposition method. Despite these alternatives, the main conclusions do not change.

Suggested Citation

  • Shih-Wei Chao, 2019. "The Role of US Variables in Long-Run and Short-Run Taiwan Stock Volatility," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(5), pages 1153-1170, April.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:5:p:1153-1170
    DOI: 10.1080/1540496X.2018.1464908
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    Cited by:

    1. Riza Demirer & Asli Yuksel & Aydin Yuksel, 2020. "The U.S. term structure and return volatility in emerging stock markets," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(4), pages 687-707, October.

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