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

  • 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, Department of Quantitative Economics, Complutense University of Madrid, and Institute of Economic Research, Kyoto University.)

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://eprints.ucm.es/22714/1/1330.pdf
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Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 2013-30.

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Length: 35 pages
Date of creation: 2013
Date of revision: Aug 2013
Handle: RePEc:ucm:doicae:1330
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 and the National Science Council, Taiwan.
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  1. 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.
  2. 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.
  3. Chia-Lin Chang & Biing-Wen Huang & Meng-Gu Chen & Michael McAleer, 2010. "Modelling the Asymmetric Volatility in Hog Prices in Taiwan: The Impact of Joining the WTO," Working Papers in Economics 10/39, University of Canterbury, Department of Economics and Finance.
  4. Michael McAleer & Christian M. Hafner, 2014. "A One Line Derivation of EGARCH," Tinbergen Institute Discussion Papers 14-069/III, Tinbergen Institute.
  5. 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.
  6. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
  7. 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.
  8. 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.
  9. Chang, C-L. & Khamkaew, T. & McAleer, M.J., 2009. "A Panel Threshold Model of Tourism Specialization and Economic Development," Econometric Institute Research Papers EI 2009-40, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  10. Chialin Chang & Stéphane Robin, 2006. "Doing R&D and/or Importing Technologies: The Critical Importance of Firm Size in Taiwan’s Manufacturing Industries," Review of Industrial Organization, Springer, vol. 29(3), pages 253-278, November.
  11. Michael McAleer & Christian M. Hafner, 2014. "A One Line Derivation of EGARCH," Econometrics, MDPI, Open Access Journal, vol. 2(2), pages 92-97, June.
  12. repec:cup:cbooks:9780521896955 is not listed on IDEAS
  13. Kato, Kiyoshi & Schallheim, James S., 1985. "Seasonal and Size Anomalies in the Japanese Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(02), pages 243-260, June.
  14. Chang, C-L. & Hsu, H-K. & McAleer, M.J., 2012. "Is Small Beautiful? Size Effects of Volatility Spillovers for Firm Performance and Exchange Rates in Tourism," Econometric Institute Research Papers EI 2012-37, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  15. Chia-Lin Chang & Thanchanok Khamkaew & Michael McAleer, 2010. "IV Estimation of a Panel Threshold Model of Tourism Specialization and Economic Development," Working Papers in Economics 10/13, University of Canterbury, Department of Economics and Finance.
  16. 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.
  17. 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.
  18. repec:cup:cbooks:9780521721684 is not listed on IDEAS
  19. Michael McAleer & Suhejla Hoti & Felix Chan, 2009. "Structure and Asymptotic Theory for Multivariate Asymmetric Conditional Volatility," Econometric Reviews, Taylor & Francis Journals, vol. 28(5), pages 422-440.
  20. 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.
  21. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  22. 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.
  23. Gerald D. Gay & Jouahn Nam, 1998. "The Underinvestment Problem and Corporate Derivatives Use," Financial Management, Financial Management Association, vol. 27(4), Winter.
  24. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
  25. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  26. Mehran, Hamid, 1995. "Executive compensation structure, ownership, and firm performance," Journal of Financial Economics, Elsevier, vol. 38(2), pages 163-184, June.
  27. 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.
  28. 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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