An Analysis of the Relationship between Stock Returns and Market Risk, Interest Rate Risk, and Foreign Exchange Rate Risk in Taiwan

• Main Authors: TSAI MIN-SHAN, 蔡旻珊
• Other Authors: 簡明哲
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/88332259394334337588

碩士 === 國立臺北大學 === 經濟學系 === 97 === The purpose of this study is to examine the relationship between stock returns and market risk, interest rate risk, and foreign exchange rate risk for a sample of 974 listed Taiwan stocks during the period of 1997 to 2008. The Generalized Autoregressive Conditionally Heteroskedastic (GARCH) model was applied to the Arbitrage Pricing Theory (APT) to estimate the related beta coefficients. Monthly percentage change of stock market index, ten-year government bond yield, and foreign exchange rate index, representing the market, interest rate, and foreign exchange rate risk, respectively, are considered in the APT model. Firm’s foreign sales ratio and debt-to-equity leverage ratio are further employed to investigate the importance of these two characteristics on interest rate risk and foreign exchange risk, respectively. Major findings of the study are as follows. First, more than 95% of the firm’s stock returns are found to be significantly positively related to market risk. Only about 7% and 9% of the firm’s stock returns are found to be significantly positively related to foreign exchange rate risk and interest rate risk, respectively. Second, stock returns of firms with high foreign sales ratio and high financial leverage are found to be significantly positively related to foreign exchange rate risk and interest rate risk, respectively.