Does High Service Quality Reduce Risk or Create Idiosyncratic Returns?

This article explores the impact of service quality on idiosyncratic returns, idiosyncratic risk (nonsystematic risk), and beta (systematic risk). Service quality was derived from the airline quality rating, and three dependent variables were calculated by the Fama–French four-factor model. The data includes 1,512 monthly records from 1997 to 2006, across 21 airlines. Multiple regression and vector autoregressive models were applied to test relationships among all, low-cost, and non-low-cost airlines. The study found that service quality has a positive impact on idiosyncratic returns in non-low-cost airlines; non-low-cost airlines are less affected by changes in the external environment.     

An overview of Asian equity markets

This study overviews the development of 11 Asian equity markets, namely, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand. Prior to the onset of the global financial crisis, the Asian stock exchanges were generally bullish, underpinned particularly by China's robust economic performance. Innovations in financial products and services have been growing in importance, as stock exchanges in these countries have been making a concerted effort to introduce new features and best practices, with the objectives of raising market efficiency, enhancing service quality, and generally bringing operations up to par with international standards. But the potential to realize or support market efficiency can only be possible within an adequate legal framework, a sound market infrastructure, and appropriate corporate governance mechanisms. Thus, many challenges are still to be overcome in the region.     

Does microtherm boost pharmaceutical companies’ market capitalization returns?

The purpose of this study was to survey the relationship between the temperature factors and market capitalization returns of pharmaceutical companies by analysing both the daily and weekly frequency data in Taiwan. The threshold regression model with the GJR-GARCH process was applied for examination in this study; we found that pharmaceutical companies’ market capitalization returns could be boosted after exposure to extremely low temperatures for a period of time. Besides, the delayed effect of cold weather is demonstrated to exist. This phenomenon can be illustrated by epidemiological evidence-related mental factors, not by traditional behavioural finance. Moreover, lower weekly average temperatures are beneficial for investors to gain weekly pharmaceutical companies’ market capitalization returns. We are of the opinion that our findings offer an insightful suggestion for investors to buy pharmaceutical stocks at an opportune moment.     

The price impact of foreign institutional herding on large-size stocks in the Taiwan stock market

This study constructs a panel threshold regression model to explore the price impact of foreign institutional herding of firms listed in the Taiwan Stock Exchange during January 2000 to June 2008. Our panel threshold model is constructed to explore the price impact of foreign institutional investors?? herding in the Taiwan stock market after controlling the firm size. By examining the presence of threshold effect, this study analyzes whether firm size would obviously and asymmetrically affect the explanation for the effect of changes in foreign investors?? share ownership on abnormal returns. The empirical results of this study find the significant evidence of threshold effect which divides the stocks into large-size and small-size firms. It is found that foreign institutional investors in the Taiwan stock market tend to hold large-size stocks listed in the Taiwan Stock Exchange. There is an apparent increase in the subsequent abnormal returns on large-size stocks bought in bulk by foreign investors. The signals of changes in share ownership initiated by foreign institutional investors would reveal further information for improving the performance of asset reallocation decisions in Taiwan. The panel threshold model constructed in this paper well describes the price impact of institutional herding yet eschews the possibly subjective data snooping issue resulting from the two-pass sorting method as proposed by previous related researches.     

ARDL Approach to the Exchange Rate Overshooting in Taiwan

This paper re-examines Dornbusch’s (1976) sticky-price monetary model to exchange rate determination by employing both conventional Johansen’s (1988, 1990, 1994) maximum likelihood cointegration test and the ARDL Bound test by Pesaran, Shin, and Smith (2001) for the monthly data of Taiwan over the period 1986:01 ∼ 2003:04. Ambiguous results are found for the long-run equilibrium relationship between the NTD/USD exchange rate and macro fundamentals. With the advantage that ARDL Bound test incorporates both I(1) and I(0) series, we conclude our empirical evidence that there is no long-run equilibrium relationship between exchange rates and macro fundamentals. Moreover, for the short-run dynamic response, the result from the ARDL-UECM-MAIC (1, 10, 10, 8, 10) setting supports the overshooting of currency depreciation as pre-described by Dornbusch (1976). However, this overshooting phenomenon does not exist the current month, but one month after.JEL Classification: C32, B22, E44     

Cointegration and causal relationships among steel prices of Mainland China, Taiwan, and USA in the presence of multiple structural changes

Variation in the price of steel is an important factor to take into consideration when discussing cost control and management decisions in the construction industry. We employ various conventional and advanced econometrics methods to examine the interrelationships of steel prices in three related markets during the time period June 2002 to May 2010: Mainland China (CH), Taiwan (TW), and the United States (US). We adopt the Gregory and Hansen (GH) test and regime-switching (RS) model for cointegration, both of which accommodate endogenous structural break(s), to produce a more accurate analysis of a period in the presence of structural change(s). The empirical result of the RS cointegration test with respect to multiple structural breaks suggests a long-run equilibrium relationship among the three variables considered. This finding differs from the result of the GH test but confirms the result of the conventional Johansen test. Furthermore, the results of the Granger causality test indicate that both CH and US steel prices have great influence on the TW steel price; the Taiwanese steel market is closely linked with China and US steel markets in the long run.     

Realize the Realized Stock Index Volatility

This paper constructs estimates of daily stock index volatilities and correlation using high-frequency (one-minute) intraday stock indices. The key feature of these 'realized' volatilities and correlations is that they are not only model-free but also approximately measurement-error-free. In fact, they can be treated as observed rather than latent, so that direct modeling and forecasting of the realized volatilities can be performed using conventional time series approaches. Some interesting results appear in the analysis. Despite the fact that the unstandardized returns are skewed to the right and have fatter tails than normal, the distributions of the raw returns scaled by the realized standard deviations appear to be approximately Gaussian. The unconditional distributions of the realized variances and covariances are leptokurtic as well as highly right-skewed, but the realized correlation tends to be approximately normally distributed. There is no evidence in support of asymmetric volatility effects commonly found in previous findings. However, we find strong evidence to support the fact that there exists high contemporaneous correlation between realized volatilities and high comovement between realized correlation and volatilities.     

Analysis of long-run benefits from international equity diversification between Taiwan and its major European trading partners: an empirical note

This paper employs four cointegration test approaches, PO, HI, JJ and KSS, to test for pairwise long-run equilibrium relationships between Taiwan's stock price index and each of the stock price indexes of four European markets – French, German, Dutch, and British stock markets. The results from these four tests are robust and clearly consistent in suggesting that the Taiwan stock market is not pairwise cointegrated with the four European stock markets. This provides strong evidence that there exist long-run benefits for Taiwan investors diversifying in the equity markets of Taiwan's major European trading partners, France, Germany, Holland, and the UK, over the sample period considered from 6 January 1998 to 30 May 2002. These findings could be valuable to Taiwan individual investors and financial institutions holding long-run investment portfolios in the equity markets of France, Germany, Holland, and the UK.     

Testing for cointegration with threshold effect between stock prices and exchange rates in Japan and Taiwan

This paper empirically investigates the exchange rate effects of the New Taiwan dollar against the Japanese Yen (NTD/JPY) on stock prices in Japan and Taiwan from January 1991 to Mach 2008. Our study employs the newly threshold error-correction model (TECM) elaborated by Enders and Granger [Enders, W., Granger, C.W.F., 1998. Unit-root tests and asymmetric adjustment with an example using the term structure of interest rates. Journal of Business Economics & Statistics 16, 304–311] and Enders and Siklos [Enders, W., Siklos, P.L., 2001. Cointegration and threshold adjustment. Journal of Business Economics & Statistics 19, 166–176], assuming the nature of the relationship between the variables is on the basis of non-linearity. The empirical evidence suggests that there is a long-run equilibrium relationship between NTD/JPY and the stock prices of Japan and Taiwan during the time period investigated. However, an asymmetric threshold cointegration relationship only exists in Taiwan’s financial market. Furthermore, we extend our research by taking into account the effect of the U.S. exchange rate specifically on Taiwan’s financial market. This research also finds a long-term equilibrium and asymmetric causal relationships between NTD/USD and the stock prices of Taiwan. In addition, the results of TECM Granger-Causality tests show that no short-run causal relationship exists between the two financial assets considered for both countries’ cases. However, in the long run a positive causal relationship running from either the Japan or U.S. exchange rate to the stock prices of Taiwan strongly argues for the traditional approach.     

Causes of Budget Changes in Building Construction Projects: An Empirical Study in Taiwan

Most contractors pay close attention to managing costs due to the direct impacts of cost overruns on their profits. Contractors often cannot effectively control the costs of a construction project due to inaccurate budget allocation, resulting in unsuccessfully forecasting project profits or losses until the project's completion. This study analyzed three real cases and utilized a questionnaire survey to identify the main causes of budget changes in building construction projects in Taiwan. Research results reveal that “client changes,” “inaccurately estimated quantities,” and “unclear drawings and specifications” are the main causes of budget changes. These results provide not only a means of correcting the causes of inaccurate budget allocation but also a measure for project managers to review and control their project costs, which is important to a contractor during a low-profit era.