Singapore: World Scientific Publishing Co. Pte. Ltd.
This study uses a cointegration analysis and vector autoregressive models to investigate the transmission of stock price movements among Taiwan and its major trading partners, Hong Kong, Japan and the United States. The results of Johansen cointegration test indicate that four stock markets considered are cointegrated with one cointegrating vector, which violates the semi-strong form of the market efficiency hypothesis. The results from Granger-causality test based on error-correction models suggest the relative leading roles of the U.S. and Japanese markets in driving fluctuations in the other two markets. In order to capture the impacts of the economic shocks, two dummy variables are incorporated into the models taking into account the U.S. stock crash of October 1997 (D97) and the previous spreading Asian finance crises (Dac). The results indicate that D97 significantly affects the U.S. stock market, but shows no significant impact on the others. The Dac, however, shows significant impacts on both the Japanese and the U.S. markets. The robustness of the relative leading roles of the U.S. and Japanese markets are further supported by the variance decompositions and impulsive response functions indicators. The Taiwan and Hong Kong markets are somewhat affected more by regional countries such as Japan than by the U.S.
Review of Pacific Basin financial markets and policies 4(4), pp.379-401