Modelling International Tourist Arrivals and Volatility: An Application to Taiwan

23 Pages Posted: 9 Mar 2009 Last revised: 18 Mar 2009

See all articles by Chia-Lin Chang

Chia-Lin Chang

National Chung Hsing University - Department of Applied Economics, Department of Finance

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute; Tinbergen Institute; University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Daniel J. Slottje

Southern Methodist University (SMU) - Department of Economics

Date Written: March 7, 2009

Abstract

International tourism is a major source of export receipts for many countries worldwide. Although it is not yet one of the most important industries in Taiwan (or the Republic of China), an island in East Asia off the coast of mainland China (or the People's Republic of China), the leading tourism source countries for Taiwan are Japan, followed by USA, Republic of Korea, Malaysia, Singapore, UK, Germany and Australia. These countries reflect short, medium and long haul tourist destinations. Although the People's Republic of China and Hong Kong are large sources of tourism to Taiwan, the political situation is such that tourists from these two sources to Taiwan are reported as domestic tourists. Daily data from 1 January 1990 to 30 June 2007 are obtained from the National Immigration Agency of Taiwan. The Heterogeneous Autoregressive (HAR) model is used to capture long memory properties in the data. In comparison with the HAR(1) model, the estimated asymmetry coefficients for GJR(1,1) are not statistically significant for the HAR(1,7) and HAR(1,7,28) models, so that their respective GARCH(1,1) counterparts are to be preferred. These empirical results show that the conditional volatility estimates are sensitive to the long memory nature of the conditional mean specifications. Although asymmetry is observed for the HAR(1) model, there is no evidence of leverage. The QMLE for the GARCH(1,1), GJR(1,1) and EGARCH(1,1) models for international tourist arrivals to Taiwan are statistically adequate and have sensible interpretations. However, asymmetry (though not leverage) was found only for the HAR(1) model, and not for the HAR(1,7) and HAR(1,7,28) models.

Keywords: asymmetry, conditional volatility, EGARCH, GARCH, GJR, heterogeneous autoregressive model, international tourism, international tourist arrivals, leverage, long memory

JEL Classification: C32, G18,G32

Suggested Citation

Chang, Chia-Lin and McAleer, Michael and Slottje, Daniel J., Modelling International Tourist Arrivals and Volatility: An Application to Taiwan (March 7, 2009). Available at SSRN: https://ssrn.com/abstract=1355108 or http://dx.doi.org/10.2139/ssrn.1355108

Chia-Lin Chang (Contact Author)

National Chung Hsing University - Department of Applied Economics, Department of Finance ( email )

Taichung, Taiwan
China

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute ( email )

Rotterdam
Netherlands

Tinbergen Institute

Rotterdam
Netherlands

University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Tokyo
Japan

Daniel J. Slottje

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States

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