The Effects of Foreign Ivestment On Taiwan Stock Returns

• Main Authors: Yan-Yu Shi, 施彥宇
• Other Authors: Shan-Non Chin
• Format: Others
• Language: zh-TW
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/79468935347899616807

碩士 === 國立中山大學 === 中山學術研究所 === 91 === Abstract It has long been Taiwan’s primary goal to be the Asia-Pacific financial center, especially after joining WTO, the internationalization of stock exchange, finance, and economy has undoubtedly become an inevitable trend. After Taiwan ensured the policy goals of financial liberalization, internationalization, as well as building Taiwan into an Asia-Pacific operation center in the mid-1980s, government has gradually eased financial restrictions and scrapped limits on foreign investment in the domestic stock market to expand and stabilize stock market through opening to foreign investment, and to direct investors toward rational trading through professional analysis of foreign investment capital. Although foreign capital inflow can strengthen stock market which helps accelerate economic development and internationalization; nevertheless, Mexico’s and Asia’s financial crisis in 1990s due to the abolishment of restrictions on capital movement, turned the policy of easing restrictions on foreign participation in the stock exchange into a double-edged sword. That is to say, while it is easier for enterprises to finance business and expand total demands to accelerate economic growth, the excessive foreign capital movement may impact domestic economy and finance, causing rapid expansion of capital and credit, inflation, as well as appreciation of real exchange rate. This study attempts to explore the dynamic effect of fundamental and stock trading factors on the stock’s return rate after government eased restrictions on foreign participation in the stock exchange at the third stage of entirely opening to foreign investment. The results include that first, after the third stage of opening to foreign investment, foreign capital inflow actually causes the validity of exchange rate and monetary supply to influence stock’s return rate, which changes the interpretation on the cause-and-effect of stock’s return rate. Second, shortened reaction time on the impact of fundamental and trading factors on stock’s return rate can rapidly reflect on stock’s return rate, which helps stabilize stock market. And finally, the decomposition of forecast error variance verifies that financial internationalization indeed structurally changes how Taiwan’s macroeconomic environment interprets stock’s return rate. Moreover, as for trading behavior, the influence of the more speculative trading credit on stock’s return rate decreases, and the foreign capital deregulation helps stabilize stock market. Key word: foreign investment, stock return, fundamental factor, trading factor, unit root, VAR