This paper examines the size effects of volatility spillovers for firm performance and exchange rates with asymmetry in the Taiwan tourism industry. The analysis is based on two conditional multivariate models, BEKK-AGARCH and VARMA-AGARCH, in the volatility specification. Daily data from 1 July 2008 to 29 June 2012 for 999 firms are used, which covers the Global Financial Crisis. The empirical findings indicate that there are size effects on volatility spillovers from the exchange rate to firm performance. Specifically, the risk for firm size has different effects from the three leading tourism sources to Taiwan, namely USA, Japan, and China. Furthermore, all the return series reveal quite high volatility spillovers (at over sixty percent) with a one-period lag. The empirical results show a negative correlation between exchange rate returns and stock returns. However, the asymmetric effect of the shock is ambiguous, owing to conflicts in the significance and signs of the asymmetry effect in the two estimated multivariate GARCH models. The empirical findings provide financial managers with a better understanding of how firm size is related to financial performance, risk and portfolio management strategies that can be used in practice.
This paper investigates the stock returns and volatility size effects for firm performance in the Taiwan tourism industry, especially the impacts arising from the tourism policy reform that allowed mainland Chinese tourists to travel to Taiwan.Four conditional univariate GARCH models are used to estimate the volatility in the stock indexes for large and small firms in Taiwan. Daily data from 30 November 2001 to 27 February 2013 are used, which covers the period of Cross-Straits tension between China and Taiwan. The full sample period is divided into two subsamples, namely prior to and after the policy reform that encouraged Chinese tourists to Taiwan.The empirical findings confirm that there have been important changes in the volatility size effects for firm performance, regardless of firm size and estimation period. Furthermore, the risk premium reveals insignificant estimates in both time periods, while asymmetric effects are found to exist only for large firms after the policy reform. The empirical findings should be useful for financial managers and policy analysts as it provides insight into the magnitude of the volatility size effects for firm performance, how it can vary with firm size, the impacts arising from the industry policy reform, and how firm size is related to financial risk management strategy.
Abstract:The paper uses monthly data on tourism related factors from April 2005-June 2016 for Taiwan that applies factor analysis and Chang's (2015) novel approach for constructing a tourism financial indicator, namely the Tourism Financial Conditions Index (TFCI). The TFCI is an adaptation and extension of the widely-used Monetary Conditions Index (MCI) and Financial Conditions Index (FCI) to tourism stock data. However, the method of calculation of the TFCI is different from existing methods of constructing the MCI and FCI in that the weights are estimated empirically. The empirical findings show that TFCI is statistically significant using the estimated conditional mean of the tourism stock index returns (RTS). Granger Causality tests show that TFCI shows strong feedback on RTS. An interesting insight is that the empirical results show a significant negative correlation between F1_visitors (Foreign Visitor Arrivals) and RTS, implying that tourism authorities might promote travel by the "rich", and not only on inbound visitor growth. The use of market returns on the tourism stock sub-index as the sole indicator of the tourism sector, as compared with the general activity of economic variables on tourism stocks, is shown to provide an exaggerated and excessively volatile explanation of tourism financial conditions.
This paper extends previous research by reexamining the difference in cross‐sectional variability of Japanese and U.S. price‐to‐earnings (PE) ratios. A simple model is developed to decompose the variance of the PE ratio into three components: the variance of the price‐to‐book (PB) ratio, the variance of the book‐to‐earnings (BE) ratio and the covariance of the PB and BE ratios. We analyze the behavior of the cross‐sectional variability of the PE ratio and its components and compare the behavior of these ratios across the U.S. and Japanese markets. We find that the cross‐sectional variability of the PE ratio in the Japanese market is consistently lower than that of the PB ratio and the converse is true for the U.S. market. The cross‐sectional variability of PE ratios in Japan is lower than that in the U.S. and the converse is true for the PB ratio. Our results are inconsistent with those reported by Bildersee et al. and indicate that the main factor causing the differences between the cross‐sectional variability of PE ratios and PB ratios is the high negative covariance of the PB and BE ratios.
This paper examines the size effects of volatility spillovers for firm performance and exchange rates with asymmetry in the Taiwan tourism industry. The analysis is based on two conditional multivariate models, BEKK-AGARCH and VARMA-AGARCH, in the volatility specification. Daily data from 1 July 2008 to 29 June 2012 for 999 firms are used, which covers the Global Financial Crisis. The empirical findings indicate that there are size effects on volatility spillovers from the exchange rate to firm performance. Specifically, the risk for firm size has different effects from the three leading tourism sources to Taiwan, namely USA, Japan, and China. Furthermore, all the return series reveal quite high volatility spillovers (at over sixty percent) with a one-period lag. The empirical results show a negative correlation between exchange rate returns and stock returns. However, the asymmetric effect of the shock is ambiguous, owing to conflicts in the significance and signs of the asymmetry effect in the two estimated multivariate GARCH models. The empirical findings provide financial managers with a better understanding of how firm size is related to financial performance, risk and portfolio management strategies that can be used in practice.
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