Interrelationships among the Taiwanese, Japanese and Korean TFT-LCD panel industry stock market indexes: An application of the trivariate FIECヨFIGARCH model

a r t i c l e i n f o The purpose of this study is to analyze the interrelationships among the Taiwanese, Japanese and Korean TFT-LCD panel industry stock market indexes by applying a trivariate FIEC-FIGARCH model. The empirical results confirm that the FIEC-FIGARCH model can be used to capture long memory behavior and allow us to conclude that mean and volatility spillover, and long memory effects are found in these three markets. Furthermore, we found that deviations in the long-run equilibrium for Japanese TFT-LCD panel industry adjust back very slowly in comparison to the other two countries; and that, in terms of conditional covariance, dynamic interrelationships exist among the TFT-LCD panel industry stock market indices of these three countries. In recent years the global economy has become more integrated due to the trends of internationalization and liberalization and the rapid progress of R&D, applied science, networking, etc. sensitizing local stocks to turbulences in foreign financial markets, for instance, the stock price vibrations derived from the Asian Financial Crisis in 1997, the acute stock price vibrations after the dreadful 911 terrorist attacks in United States, etc. Taiwan is also part of the internationali-zation trend; its entrance into the World Trade Organization (WTO) and its exportation oriented economy are characteristics that favor international influences in Taiwanese stock prices. Considering these circumstances and also that the volatility of equity markets might exhibit long memory effects, the international price transmission effects on the equity market of TFT-LCD panel industry are worth being analyzed by enterprises, government officials and scholars due to its importance for Taiwan economy. The TFT-LCD panel industry is characterized by (1) high capital requirement, entrance barriers and exit costs; (2) highly intensive technology along with complicated processes of production; (3) short-term product life cycle; (4) price sensitive to market demand, supply and economic cycles; (5) popular international division of labor; (6) high market concentration; (7) completeness of industry structure that helps to create competitive advantage; (8) material cost accounting for high percentages; (9) high brain circulation and (10) high concentration of shareholding of domestic TFT-LCD panel firms. 1 The global development of the TFT-LCD panel industry is primarily concentrated in Taiwan, Korea and Japan. Japan was the largest producer of TFT-LCD panels until 1995, when Korea overtook the leadership by pursuing a low price strategy. The Won depreciation during Asian financial crisis (1997) sharpened the price differences, leading …