U.S.-Taiwan Stock Return Co-movements and Spillover Effects between Taiwanese Common Stocks and Corresponding GDRs

• Main Authors: FRANK SHIH-CHIEH CHANG, 張世潔
• Other Authors: SHIKUAN CHEN
• Format: Others
• Language: en_US
• Published: 2000
• Online Access: http://ndltd.ncl.edu.tw/handle/15457194316437012305

碩士 === 國立臺灣大學 === 國際企業學研究所 === 88 === THESIS ABSTRACT GRADUATE INSTITUTE OF INTERNATIONAL BUSINESS NATIONAL TAIWAN UNIVERSITY MONTH/YEAR: JUNE, 2000 NAME: FRANK SHIH-CHIEH CHANG ADVISOR: Dr. SHIKUAN CHEN U.S.-Taiwan Stock Return Co-movements and Spillover Effects between Taiwanese Common Stocks and Corresponding GDRs Financial economics has its version of the Law of One Price whereby two securities with identical payoffs should sell for the same price barring transaction costs. DRs seem to provide a convenient setting to examine the Law of One Price. Since international cross listing or dual listing activities are very common in the open economy, stock return cross-country covariances play a key role in international finance. Changes in these covariances affect the asset prices and the volatility of portfolios. Most financial participants know departures from the Law may lead to arbitrage profits; nevertheless, they concern much about the determinants of the levels and dynamics of these covariances. In this thesis, we firstly investigate daily return co-movements between Taiwanese and U.S. stocks, and try to find the determinants of their return covariances. Especially, we distinguish between "global" and "competitive" shocks for stock returns. We estimate whether global shocks are associated with high return covariances, whereas competitive shocks are accompanied with low covariances. Secondly, we examine the lead-lag relation between Taiwanese common stocks and their corresponding DRs. If variance of the residual term is under the assumption of homoscedasticity, we estimate there is correlation between returns of Taiwanese common stocks and their corresponding DRs. If variance of the residual term is under the assumption of heteroscedasticity, then we test whether spillover effect on return and volatility exist between Taiwanese common stocks and their corresponding DRs. Our findings are presented as follows: 1. Covariances between Taiwanese and U.S. stocks returns are not high on days of U.S. macroeconomic announcements. We may interpret these findings that the global component of national macroeconomic announcements or industry shocks is small. 2. The correlations between DRs and U.S. shares are high, when the S&P 500 index has a high absolute return. It also true when correlations between DRs and industry-matched U.S. shares are high, the Taiwan stock index has a high absolute return. 3. By using the Granger Causality Test or the Error Correction Model, we find the return on the common share of the certain firms has the Granger cause on its corresponding DR individually. It is consistent with Garbade and Silber''s (1979) "dominant-satellite" hypothesis. However, some firms even have the bi-directional feedback between the common share and the corresponding DR respectively. 4. By using GARCH Model, we find the correlations are existing between the return of all samples on the common share and the corresponding DR respectively. 5. Volatility of all samples on the common share may affect the volatility on the DR respectively. Volatility spillover effects of some sample companies are asymmetric; it shows passive information has greater impact than positive information.