| Summary: | 碩士 === 國立中正大學 === 財務金融研究所 === 92 === Essay I. Stocks, Bonds, Bills and Monetary Policy in the Taiwan Financial Markets.
Abstract
This study investigates the impact of monetary policy on stock and bond markets in Taiwan. Specifically, stock market indexes exhibit higher returns during expansive monetary policy environment, whereas returns on bonds and bills show no difference between expansive and restrictive monetary environments. All of the Sharpe ratios of stock indexes are positive and relative large during expansive monetary environment, while the Sharpe ratio of bond index during restrictive periods is larger than that during expansive periods. Regression results show that stock returns are significantly related to monetary policy, while returns on bonds and bills are not. We further find that the impact of monetary policy on industry index returns is positively associated with the size of industry.
Essay II. Business Condition, Monetary Policy, and Expected Security Returns in the Taiwan Financial Markets.
Abstract
The study tests the ability of business condition proxies suggested by Fama and French (1990), namely the term spread (TERM) and dividend yield (DP), to predict stock and bond returns in Taiwan. We then examine whether the monetary policy can affect the predictability of business condition proxies on stock and bond returns by incorporating monetary policy action into the business condition model. Without considering monetary policy environment, we find that only DP can significantly forecast the stock returns and both DP and TERM fail to forecast the bond returns. Given at various monetary policy environments, DP can significantly forecast the stock returns only during the expansive monetary period, while the predictability of TERM on bond and stock returns is detected during the restrictive monetary period. Empirical results show that the behavior of the business condition proxies and their influence on expected security returns are significantly affected by the monetary policy. The finding implies that the monetary environment plays a strong signaling role in the Taiwan stock market and therefore we should take into account the effect of monetary policy when modeling stock market returns.
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