| Summary: | 碩士 === 國立臺灣大學 === 財務金融學研究所 === 102 === This study investigates the dynamic interactions among the foreign equity &;#64258;ows, TAIEX returns, dividend yield, and price to earnings ratio. We utilize vector autoregression(VAR) model and Granger causality to analyze the monthly data during the fully liberalized era in Taiwan from 2003 to March 2014. Our empirical findings reveal one-way Granger causality relationship from TAIEX returns to foreign flows. There are two important implications based on this result. First, foreign inflows are not able to positively influence TAIEX returns of the subsequent month. Secondly, foreign institutional investors (FINIs) exhibit significant momentum trading in term of both magnitude and duration. Interestingly, we find no dynamic interactions among the selected fundamentals and foreign investments, indicating FINIs are largely driven by returns and not respond to the selected fundamentals’ shocks. Contrary to the common perceptions about the “sophisticated” FINIs, our results show that foreign investors in Taiwan collectively act like the uninformed “returns chasers”.
In addition, we document that innovations in changes of the selected fundamentals such as leading dividend yield and leading price to earnings ratio can elicit negative response to TAIEX returns. It is noteworthy that all the observed variables display various degrees of positive autocorrelation toward their own shocks.
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