Ho-Chyuan Chen

On the application of the dynamic conditional correlation model in estimating optimal time-varying hedge ratios

This article applies the dynamic conditional correlation model of Engle (2002) with error correction terms in order to investigate the optimal hedge ratios of British and Japanese currency futures markets. For a comparison, the estimates of three other models -- traditional generalized autoregressive conditional heteroskedasticity (GARCH), ordinary least square (OLS) and error correction model (ECM) -- are also reported. Results show that the dynamic conditional correlation model yields the best hedging performance in both futures markets. Nonetheless, the traditional multivariate GARCH model (which exhibits constant conditional correlations and time-varying hedge ratios) performs the worst hedging effectiveness, even inferior to the time-invariant hedging methods (OLS and ECM). The inclusion of dynamic conditional correlations in the GARCH model can therefore better capture the frequent fluctuations in futures markets.

Volatility, Depth, and Order Composition: Evidence from a Pure Limit Order Futures Market

This paper investigates market behaviors (such as volatility, depth, and volume) and order-flow decomposition in a pure limit order futures market, the Taiwan Futures Exchange. The results are different from those in equity markets due to relatively high adverse selection costs in futures markets. We show that a volatility (depth) increase is followed by a depth (volatility) decrease; a market order increase (decrease) subsequently induces higher (lower) volatility; and a limit order increase (decrease) results in more (less) market orders and limit orders. When the upside (downside) volatility rises, buyers decrease (increase) subsequent limit bid orders, and sellers increase (decrease) limit ask orders.

How to go global with differentiated products

The product differentiation does have effect on the entry choice for foreign firm.The multinational enterprises prefer acquisition mode in more developed countries.The host countries just welcome acquisition mode into their countries.Both the government and foreign firm prefer identical entry mode only in more developed countries.Larger product differentiation increases the host welfare in less developed countries. This paper employs a three-stage game to analyze the entry preference for foreign firms and host country with product differentiation. We derive a theoretical support of entry decision for multinational enterprises. It finds that lower product differentiation induces higher (lower) technology transfer given a sufficiently low (high) technology transfer cost. Moreover, the foreign firm prefers acquisition given sufficiently low transfer costs just like entering developed countries. However, probability for the equilibrium mode of acquisition to induce higher technology (than direct entry) decreases in product differentiation. We also find that both the government and the foreign firm prefer identical entry mode only when technology transfer cost is at a certain low level. Probability of this identical situation generally decreases in product differentiation. Contrarily, the governments in relatively highly developing countries generally welcome acquisition mode while the foreign firms prefer direct entry.

Does Banking Competition Improve Industry Performance? Evidence from Taiwan

This paper investigates how the degree of the banking sector competition affects the operating performance of non-banking industrial sectors that are typically dependent on external financing. The empirical analysis adopts the H-statistic competition index proposed by Panzar and Rosse and uses Taiwan’s industry-level and bank-level panel data over the period from 1999:07 to 2013:06. The empirical results find that an increase in the degree of bank competition leads to weaken the industry performance, especially during non-crisis period. Furthermore, such effects may be different, attributive to industry heterogeneity.

DOES MANDATORY IFRS ADOPTION IMPROVE ACCOUNTING QUALITY? EVIDENCE FROM TAIWAN

This paper examines the impact of the adoption of International Financial Reporting Standards (IFRS) on Taiwanese listed companies. We employ ten metrics, classified in income smoothing, report aggressiveness and value relevance, to test whether accounting quality has improved after mandatory IFRS adoption in Taiwan beginning in 2013. The 2012 financial statements under local Generally Accepted Accounting Principles (GAAP) are also required to be restated with IFRS. These statements provide us useful information to evaluate the effect of adopting an alternate accounting standard. Our sample covers over 800 listed firms in Taiwan during 2011 to 2013. Our results can be summarized as follows. Relative to 2012, we find evidence of significant decreases in income smoothing and in discretionary accruals as well as a significant increase in timely recognition of large losses in 2013. However, relative to 2012, we do not find any significant increase in value relevance after mandatory IFRS adoption. Our results contribute to the existing debate on whether adopting IFRS improves accounting quality. They also prompt regulators in emerging economies to be aware that the effectiveness of adopting IFRS may not be consistent with reducing earnings management and amplifying value relevance.

Strategic Debt and RJV Competition: Erratum

The purpose of this note is to point out that there is a computing error made in the derivation of the t value in Chen (2005). The erratum presents the correct expression of t and the ensuing changes in the results of Chen (2005).