| Abstract: |
The paper uses monthly data on financial stock index returns, tourism stock
sub-index returns, effective exchange rate returns and interest rate
differences from April 2005 – August 2013 for Taiwan that applies Chang’s
(2014) novel approach for constructing a tourism financial indicator, namely
the Tourism Financial Conditions Index (TFCI). The TFCI is an adaptation and
extension of the widely-used Monetary Conditions Index (MCI) and Financial
Conditions Index (FCI) to tourism stock data. However, the method of
calculation of the TFCI is different from existing methods of constructing the
MCI and FCI in that the weights are estimated empirically. The empirical
findings show that TFCI is estimated quite accurately using the estimated
conditional mean of the tourism stock index returns. The new TFCI is
straightforward to use and interpret, and provides interesting insights in
predicting the current economic and financial environment for tourism stock
index returns that are based on publicly available information. In particular,
the use of market returns on the tourism stock index as the sole indicator of
the tourism sector, as compared with the general activity of economic
variables on tourism stocks, is shown to provide an exaggerated and
excessively volatile explanation of tourism financial conditions. |