Taiwan and U.S. Equity Market Interdependence and Contagion: Evidence from Four-Factor Model
The International Journal of Business and Finance Research, v. 12 (2) p. 95-115, 2018
21 Pages Posted: 28 Feb 2019
Date Written: 2018
A four-factor model is used to measure the interdependence’s co-movement and crisis’ contagion effect on portfolio returns of 23 Taiwanese industries during tranquil and the U.S. subprime mortgage crisis periods. By incorporating the control variables of economic and financial fundamentals, we deconstruct the relevance of returns on industrial assets’ channels. The empirical results show that the co-movement effect on Taiwan’s industrial portfolios returns are affected by “global,” “regional,” and “domestic” factors. Additionally, in the subprime mortgage crisis period, the contagion effect of Taiwan’s industrial portfolios returns was affected by the domestic and crisis factor. Based on our empirical study, the transmission of Taiwan’s industrial portfolio returns channel is significantly impacted by the instrument variables of interest rate, trade integration, political stability, and government budgets of the economy fundamentals.
Keywords: Co-Movement, Contagion, Financial Crisis, Factor Model
JEL Classification: G12, G15
Suggested Citation: Suggested Citation