The Impact of Financial Crisis and Trade Relevance on the Market Reactions in Taiwan’s Financial Industry
Journal Title: Invention Journal of Research Technology in Engineering & Management - Year 2018, Vol 2, Issue 11
Abstract
Previous literature seldom investigates whether financial crisis events or events caused by trade-related countries have great impact on stock returns. However, the event characteristics and occurrence areas are critical of financial contagion effect. For these reasons, this study investigates market response of international events from 2008 to 2016 to confirm the financial contagion theory by examining the stock returns of Taiwan’s financial industry. We examine whether financial crisis causes greater market response of Taiwan’s financial industry than non-financial crisis event since Taiwan’s financial industry invest in foreign funds or stocks. This study uses event study method to observe the abnormal returns on the event day. We further use analysis of variance (ANOVA) to compare the impact of financial crisis events on stock returns with the impact of non-financial crisis events on stock returns in Taiwanese listed financial industry. In addition, we compare the market response between events occurred in countries that have high trade relevance to Taiwan and countries that have little association with Taiwan. The results show that Taiwan financial industry had significantly abnormal returns when international financial crisis events happened. A price co-movement in other market causes a shock in Taiwan’s stock market. Furthermore, ANOVA analysis results show that impact of international financial crisis events is larger than that of international non-financial crisis events in Taiwan’s financial industry, which proves financial contagion theory
Authors and Affiliations
Bi-Huei Tsai
Keywords
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