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

  • Chia-Lin Chang

    (Department of Applied Economics Department of Finance National Chung Hsing University, 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 and Institute of Economic Research Kyoto University, Japan and Department of Quantitative Economics Complutense University of Madrid, Spain)

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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File URL: http://www.kier.kyoto-u.ac.jp/DP/DP839.pdf
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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 839.

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Length: 29pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:kyo:wpaper:839
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  1. Massimiliano Caporin & Michael McAleer, 2010. "Do We Really Need Both BEKK and DCC? A Tale of Two Multivariate GARCH Models," KIER Working Papers 738, Kyoto University, Institute of Economic Research.
  2. Chia-Lin Chang & Michael McAleer, 2010. "Aggregation, Heterogeneous Autoregression and Volatility of Daily International Tourist Arrivals and Exchange Rates," KIER Working Papers 712, Kyoto University, Institute of Economic Research.
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