Narrow Results

This study attempts to evaluate Taiwanese hotel stock returns in response to the COVID-19 outbreak. This study uses data from fifteen hotel stocks from the Taiwan Capitalization Weighted Stock Index (TAIEX) and implements a t-test and event study methodology. We create the event window from December 31, 2018 to March 31, 2020, which includes the estimation period from December 31, 2018 to December 31, 2019, the pre-announcement period from January 1, 2020 to January 31, 2020 and the post-announcement period from February 1, 2020 to March 31, 2020. In January 2020, the average daily returns exhibited a distinct pattern, as all stocks witnessed negative returns following the announcement of the pandemic alert. The results indicate that hotel stocks show a negative and significant difference in the mean. Moreover, the results of the event study indicate a persistent negative impact on the selected stock. It is therefore important for policymakers to formulate pandemic outbreak strategies in advance that may help investors devise diversification strategies.

In this chapter, we use the Clark [Cross-Border Investment Risk, Euromoney Books, 1991; Euromoney, February, pp. 73–76, 1991; Euromoney, April, pp. 79–82, 1991] methodology to estimate the macroeconomic financial risk premium from 1985 to 1997 for Argentina, Brazil, Chile, Colombia, Mexico and Venezuela, the six Latin American countries with the largest stock markets, and test whether and to what extent it affects their stock markets’ performance. We find that the macroeconomic financial risk premium is a significant explanatory variable with the right sign for five of the countries (Brazil, Chile, Colombia, Mexico and Venezuela) that accounts for about 12% of annual variations in the stock market indices. Interestingly, the results indicate that there are no country-specific fixed effects and that sensitivity to changes in the financial risk premium is similar for all five countries. Results are robust in that the financial risk premium remains significant when other explanatory variables suggested in the literature are added. We find that the financial risk premium is significant for Argentina as well, but its effect is offset by the beef cycle, which is negatively correlated with the risk premium and which still plays an important role in the determination of real salaries, private consumption and profits in the industrial sector.