The Impacts of Political Events on Foreign Institutional Investors and Stock Returns: Emerging Market Evidence from Taiwan

24 Pages Posted: 1 Apr 2005

See all articles by Dar-Hsin Chen

Dar-Hsin Chen

National Chiao Tung University - Department of Information and Financial Management

Feng-Shun Bin

University of Illinois at Springfield - Department of Business Administration

Chun-Da Chen

Ching-Yun University

Abstract

This study investigates the possible impact of various political events on Taiwan's stock performance. When market-adjusted techniques are applied, seemingly Taiwan's stock market often reacts to the occurrences of political incidents with a significant abnormal price performance. Nevertheless, after employing an MVRM framework that accounts for market risk differences across firms and for distributional tendencies in daily returns, we find that price reactions to most of the political events are rather insignificant, implying those events be largely uninformative with only a few exceptions. The abnormal return behaviors are also frequently comparable between firms with small - and large foreign institutional ownerships. Some considerable volatility shifts in portfolio returns, however, are observed after specific events occur.

Keywords: Political risk, QFII, emerging markets, event studies

JEL Classification: F21, F30, G15

Suggested Citation

Chen, Dar-Hsin and Bin, Feng-Shun and Chen, Chun-Da, The Impacts of Political Events on Foreign Institutional Investors and Stock Returns: Emerging Market Evidence from Taiwan. Available at SSRN: https://ssrn.com/abstract=681502

Dar-Hsin Chen

National Chiao Tung University - Department of Information and Financial Management ( email )

Hsinchu 300
Taiwan

Feng-Shun Bin (Contact Author)

University of Illinois at Springfield - Department of Business Administration ( email )

Springfield, IL 62703
United States

Chun-Da Chen

Ching-Yun University ( email )

Jung-Li, 320, R.O.C
Taiwan

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