Intraday Relationship between Taiwan and Major Asia Equity Markets

Abstract

Fifteen-minute intraday returns for Taiwan, Tokyo and Hong Kong stock markets are used to examine the interactions between Taiwan and Tokyo/Hong Kong stock markets. The period in study is from August 1991 to June 1992. There are some evidence of market interactions as well as weak evidence of market inefficiency in these markets. Taiwan intraday returns are impacted by preceding returns in Tokyo and Hong Kong stock markets, while Hong Kong is affected by Taiwan stock market in the same way too. Tokyo stock market is not affected by Taiwan at all. However, R-squares of the OLS results are too low to demonstrate the importance of interactions. A further examination of the sample of large changes of returns greater than 1% weakens the previous OLS evidence of interactions. Finally we collect the news reports for these three stock markets when their market index changes are greater than 1%. After searching for major factors that affected these market returns in the same period as that in study, we find that only a small percentage of large changes in Taiwan stock market are caused by large changes in Tokyo or U.S. stock markets, and not by Hong Kong stock market at all. Tokyo and Hong Kong stock markets are never reported as affected by changes in Taiwan stock market. This study shows that Taiwan, Tokyo and Hong Kong stock markets may interact with each other, but mostly through important international events. They are not integrated markets. The evidence of market inefficiency in Taiwan and Hong Kong stock markets is weak.