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

See all articles by Chun An Li

Chun An Li

National Yunlin University of Science and Technology

Min-Ching Lee

National Yunlin University of Science and Technology

Chin-Sheng Huang

National Yunlin University of Science and Technology - Department of Finance

Date Written: 2018

Abstract

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

Li, Chun An and Lee, Min-Ching and Huang, Chin-Sheng, Taiwan and U.S. Equity Market Interdependence and Contagion: Evidence from Four-Factor Model (2018). The International Journal of Business and Finance Research, v. 12 (2) p. 95-115, 2018, Available at SSRN: https://ssrn.com/abstract=3241739

Chun An Li (Contact Author)

National Yunlin University of Science and Technology ( email )

123, University Rd. Sec 3
Touliu, Youlin 640, Yunlin 64002
Taiwan

Min-Ching Lee

National Yunlin University of Science and Technology ( email )

123, University Rd. Sec 3
Touliu, Youlin 640, Yunlin 64002
Taiwan

Chin-Sheng Huang

National Yunlin University of Science and Technology - Department of Finance ( email )

Douliu City
Taiwan

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