Abstract

The paper uses monthly data on financial stock index returns, tourism stock sub-index returns, effective exchange rate returns and interest rate differences from April 2005 – August 2013 for Taiwan that applies Chang’s (2014) novel approach for constructing a tourism financial indicator, namely the Tourism Financial Conditions Index (TFCI). The TFCI is an adaptation and extension of the widely-used Monetary Conditions Index (MCI) and Financial Conditions Index (FCI) to tourism stock data. However, the method of calculation of the TFCI is different from existing methods of constructing the MCI and FCI in that the weights are estimated empirically. The empirical findings show that TFCI is estimated quite accurately using the estimated conditional mean of the tourism stock index returns. The new TFCI is straightforward to use and interpret, and provides interesting insights in predicting the current economic and financial environment for tourism stock index returns that are based on publicly available information. In particular, the use of market returns on the tourism stock index as the sole indicator of the tourism sector, as compared with the general activity of economic variables on tourism stocks, is shown to provide an exaggerated and excessively volatile explanation of tourism financial conditions.

Additional Metadata
Keywords Monetary Conditions Index, Financial Conditions Index, Model-based Tourism Financial Conditions Index, unbiased estimation
JEL Economic Methodology (jel B41), Financial Markets and the Macroeconomy (jel E44), Forecasting and Simulation (jel E47), Financing Policy; Capital and Ownership Structure (jel G32)
Publisher Tinbergen Institute
Persistent URL hdl.handle.net/1765/51355
Series Tinbergen Institute Discussion Paper Series
Citation
Chang, C-L, Hsu, H-K, & McAleer, M.J. (2014). A Tourism Financial Conditions Index (No. TI 14-060/III). Tinbergen Institute Discussion Paper Series. Tinbergen Institute. Retrieved from http://hdl.handle.net/1765/51355