This paper investigates the stock returns and volatility size effects for firm performance in the Taiwan tourism industry, especially the impacts arising from the tourism policy reform that allowed mainland Chinese tourists to travel to Taiwan. Four conditional univariate GARCH models are used to estimate the volatility in the stock indexes for large and small firms in Taiwan. Daily data from 30 November 2001 to 27 February 2013 are used, which covers the period of Cross-Straits tension between China and Taiwan. The full sample period is divided into two subsamples, namely prior to and after the policy reform that encouraged Chinese tourists to Taiwan. The empirical findings confirm that there have been important changes in the volatility size effects for firm performance, regardless of firm size and estimation period. Furthermore, the risk premium reveals insignificant estimates in both time periods, while asymmetric effects are found to exist only for large firms after the policy reform. The empirical findings should be useful for financial managers and policy analysts as it provides insight into the magnitude of the volatility size effects for firm performance, how it can vary with firm size, the impacts arising from the industry policy reform, and how firm size is related to financial risk management strategy.

asymmetry, conditional volatility models, firm size, stock returns, tourism, tourism policy reform, volatility size effects
Time-Series Models; Dynamic Quantile Regressions (jel C22), Government Policy and Regulation (jel G18), Financing Policy; Capital and Ownership Structure (jel G32), Sports; Gambling; Recreation; Tourism (jel L83)
Tinbergen Institute
Tinbergen Institute Discussion Paper Series
Discussion paper / Tinbergen Institute
Erasmus School of Economics

Chang, C-L, Hsu, H-K, & McAleer, M.J. (2013). The Impact of China on Stock Returns and Volatility in the Taiwan Tourism Industry (No. TI 13-118/III). Discussion paper / Tinbergen Institute (pp. 1–37). Tinbergen Institute. Retrieved from