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Article

Open Access

Stock Market Reaction to ECFA Announcement in Taiwan Chemicals Listed Stock

Author(s)

Ming-Chin Chin, Jing-Jye Tzeng, Wei-Ting Yu

Full-Text PDF Download XML 1171 Views

DOI:10.17265/1537-1506/2012.08.002

Affiliation(s)

Ming-Chin Chin, Ph.D., Assistant Professor, Department of Economics, Aletheia University.
Jing-Jye Tzeng, Master, Graduate program in Finance, Aletheia University.
Wei-Ting Yu, Ph.D., Assistant Professor, Department of Finance, Ta Hwa Institute of Technology.

ABSTRACT

Taiwan and Mainland China signed the Economic Cooperation Framework Agreement (ECFA) on 29th June, 2010. The ECFA is a landmark bilateral trade agreement that can make Taiwan a new gateway to Mainland China. However, the Taiwanese petrochemical industry would be very disappointed with the early harvest list as it excluded some critical export items. The purpose of this paper is to amend the understanding of the possible impact on petrochemical market after ECFA is enacted. The authors examine the cumulative daily response of stock prices to five announcements about the ECFA and evaluate the existence of the abnormal return. The authors use daily data from January 2010 to February 2011 to employ an event study approach. The empirical results suggest that the three ECFA announcement dates, as well as the signing date, show significantly negative abnormal return due to the prior positive cumulative response of Taiwan chemicals listed stock prices. This paper can provide the petrochemical industry manufacturer, owners, and investors with further insights into how chemicals stock returns react to a big event like ECFA.

KEYWORDS

ECFA, event study method, abnormal return, announcement effect

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