This study applies the CBP-GARCH model (a) to analyze the Taiwan Security Exchang (TWSE) Market and Over-the-Counter (OTC) market before and after Taiwan’s deregulation of foreign capital in December 2002 and (b) to examine differences caused by the Jump Intensity of returns among the exchange rate of New Taiwan dollars (NT) to US dollars, TWSE index, and OTC index, which fluctuate in response to overbought and oversold transactions involving foreign capital. The research period for the TWSE Market was September 1, 1994 to December 31, 2005; for the OTC, data from July 4, 1996 to December 31, 2005 were analyzed.
Results point to six distinct findings: (1) The volatility of overbought and oversold transactions by foreign capital did not significantly influence returns on the NT exchange rate or stock index during the research periods. (2) Jumps were observed in returns both before and after deregulation. Fluctuations in returns on stock indexes, however, were less volatile after deregulation. (3) In the TWSE Market, co-movement jumps occurred among returns before and after deregulation. Over time, changes in intensity were related to co-movement jumps. In the OTC market, co-movement jumps occurred only after deregulation. (4) Following deregulation, spillover effects of returns were not significant in either market. However, jump frequencies were lower in the OTC. (5) Following deregulation, the jump intensity of stock index returns were influenced by preceding daily returns. In contrast, the NT exchange rate return was influenced by preceding daily returns before and after deregulation. Both intensities were influenced by the return of relative variable before and after deregulation. (6) In the post-deregulation TWSE Market, the relative coefficient for both intensities shifted from positive to negative, but intensity was inconsistent. In the OTC, the relative coefficient showed no significant change after deregulation.