The Interaction of Margin Balance and Foreign Investment
Date Issued
2012
Date
2012
Author(s)
Yu, Chung-Heng
Abstract
This paper examines the interaction between net foreign investment, margin balance and net foreign short position in TAIFEX futures in Taiwan stock market, which many people believed the net foreign investment would push the margin balance up, which furthermore stimulates net foreign short positions in TAIFEX futures, followed by negative net foreign investment and the stock index decrease. Besides the research in 4-year total period sample, we divided it into three sub-periods — Cycle1, 2, and 3 —according to different economic backgrounds, respectively including financial crisis in 2008, the bull market after the crisis, and the whole 2011 filled with negative messages. We used unit-root test to examine if the variables are stationary, differenced the I(1) variables, put all the stationary variables into a vector autoregression model(VAR), and examined the causal relationship by Granger causality test.
The empirical results expressed there were different causal relationships in every period, which the results of Cycle2 and Cycle3 fulfilled our hypothesis comparatively. Referring to the common characteristics of the two periods, we thought the hypothetic causal relationship is more likely to emerge in the period when the stock market goes through an increasing trend followed by fluctuation and adjusting decrease. Moreover, we got positive return on Taiwan 50 and excess return on Medium 100 in the out-sample experiment trading the stocks according to the research results.
Combining the results of empirical analysis and trading experiment, the conclusion is that the interaction between net foreign investment, margin balance and net foreign short position in TAIFEX futures could be referred by the investors.
Subjects
foreign investment
margin balance
TAIFEX futures
vector autoregression
Granger Causality
Type
thesis
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