Empirical analysis of political uncertainty on TAIEX stock market

Abstract

This article examines the relationship of between political activity and TAIEX stock market behaviour by the asymmetric GARCH. The results found that the congressional effect is negative on stock returns but volatility is not significant. The congressional effect on stock market returns following financial reform significantly dropped before financial reform, and significantly exceed for the volatility in the same circumstances. These results provide evidences that investors would hold a conservative position during the congressional sessions.

Acknowledgement

The authors would like to thank the National Science Council of the Republic of China, Taiwan for financially supporting this research under Contract No. NSC 95-2416-H-264-011.

Notes

¹ Taiwan Congress, the Legislative Yuan, is the top legislative institution and played an important role on the path to democratization. The last of the members elected in 1948 retired on 31 December 1991. Moreover, the 130 new members elected in 1989 wielded legislative power on behalf of the people. These developments represented an important step in the democratic reform of Taiwan. In December 1992, according to the Additional Articles of the Constitution, 161 members of the Second Legislative Yuan were elected. Moreover, in December 1995, 164 members of the Third Legislative Yuan were elected. Taiwanese democracy thus finally became firmly established.