An Empirical Study of Asset Pricing Models and Liquidity Premium in Taiwan Stock Market- The Case of Valued Stock in Three Big Industries
Date Issued
2011
Date
2011
Author(s)
Lee, Kang-Hao
Abstract
Through historical trend of Taiwan stock market, we observe the volatility is obviously greater than other countries. It means Taiwan assets market can load tremendous trading volumes. In other words, the trading cost is low and the liquidity is high. As a result of this phenomenon, this thesis investigates the effects of liquidity and other asset pricing factors in Taiwan.
This research focuses on the performance of TAIEX from 2004 to 2010. According to different market types, we divide our data into three periods: (1) Jul, 2004 to Oct, 2007 (2) Nov, 2007 to Jan, 2009 (3) Feb, 2009 to Aug, 2010. Our main research objects are valued stock in electronic, financial and traditional industries.
The empirical study indicates that CAPM has high explanatory power to valued stocks in Taiwan. We use Fama-French model and pooling regression as well. The results are: (1) Book-to-market ratio has highest explanatory power, especially in electronic industry. (2) The influence of beta coefficient on financial and traditional industries changes with market types, and the effect is insignificantly negative to electronic industry. (3) Opposite to most studies, turnover rate has a positive impact on excess returns, particularly in bull market. The biggest effect occurred in financial industry. (4) The turnover rate of all the stock enhance clearly in bear market. The reason might be that government will enter the stock market to maintain TAIEX as a big valued stock holder. It causes the tremendous trading volume when market is declining.
Last, we follow Pastor and Stambaugh method to examine whether liquidity risk premium exists among industries. The evidence shows that it exists only in Jul, 2004 to Oct, 2007, and it is insignificant in other periods.
Subjects
Liquidity risk
Taiwan stock market
Valued stocks
Fama-French three,factors mode
Pastor and Stambaugh model
Type
thesis
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