An Empirical Study of the Relationship among Economic Factor, Monthly Sales and the Stock Price: Case of Formosa Plastics Co.
Date Issued
2011
Date
2011
Author(s)
Chen, Chieh-Yu
Abstract
Crude oil is the leading factor in plastics industry, whose performance is affected by oil price as well. In general, raising in oil price results in high plastic prices, and it
leads to higher profit of the industry in the event of lower cost of the prior inventories. Consequently, the stock price of plastic industries often fluctuate according to the oil price, whereas high oil price would obstruct the economic growth and would make the cost of plastics industries higher and thus lower the profit. Hence, the relationship between the performance of plastics industry and oil price is worth discussing.
In this paper, we employs the data from Formosa Plastics Co. as a benchmark to represent the plastics industry due to its income is one of most outstanding company in Taiwan, and we also employs some major macroeconomic factors such like west Texas Intermediate Crude oil future price, industrial production general index, exchange rate, M1B and the rate of share holdings of institutional investors as our explanatory variables.
In this study, we collect data from January 2000 to December 2010, and proceed to our research by using VAR model, Granger causality, Impulse Response Function,
Cointegration test, and Vector Error correlation model. The main results are as the following:
According to the empirical results, we can draw a conclusion as the following:
1. The effect of macroeconomic variables on Formosa Plastics Co. stock price is statistically insignificant and the model with low fitting level. Furthermore, there is no cause-effect relationship between stock price and monthly sales, which does not consist with the assumption in the information content of earnings either. The relationship
between the rate of share holdings of institutional investors and stock price is not statistically significant, which means the information that revealed by the stock price of Formosa Plastics Co. is efficient.
2. According to Cointegration Test, we can find stock price, industrial production general index and M1b significantly positive related in long term.
3. The stock price of Formosa Plastics Co. is leading Oil future price and has a positive effect on it as well. This implies that the information of oil future price is easily
to be revealed to investors. Consequently, choosing oil future price as independent variable does not have effect on prediction.
4. The monthly sales in afterward period of Formosa Plastics Co. have negative effects on the monthly sales itself. It reveals that the monthly sales in the prior and
afterward period have significant negative effects during smooth year.
5. The effect of exchange rate on Formosa Plastics Co. stock price and sales is insignificant. This shows the hedge that Formosa Plastics Co. operated made little effect
on the profit or lost of exchange.
Subjects
Monthly Sales
Stock Price
Unit Root Test
VAR
Johansen Cointegration Test
Error Correction Model
SDGs
Type
thesis
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