Cointegration analysis of tourism demand by Mainland China in Taiwan and stock investment strategy


  • Yu-Wei Lan Associate Professor, Department of Banking and Finance, Takming University of Science and Technology, Taipei, Taiwan.
  • Dan Lin Assistant Professor, Department of Banking and Finance, Takming University of Science and Technology, Taipei, Taiwan.
  • Lu Lin Assistant Professor, Department of Public Finance and Taxation, Takming University of Science and Technology, Taipei, Taiwan.



Cointegration analysis, Error correction model, Program trading.


Mainland China is the most important source of tourism for Taiwan in recent years. The purpose of this paper is to investigate the changes in the long-run demand for tourism in Taiwan by Mainland China. Using program trading and three different data sources, including the stock prices of Regent Taipei (2707), weighted index of the tourism sector (2700) and CSI ETF (0061), we find support for our hypotheses. That is, Taiwan’s tourism market does not fulfil the conditions of a strong-form efficient market hypothesis. Also, positive feedback trading does exit in Taiwan’s tourism market.


Black, F., (1986). Noise, Journal of Finance, 41(3): 529-543.

Chadee, D., Mieczkowski, Z., (1987). An empirical analysis of the effects of the exchange rate on Canadian tourism, Journal of Travel Research, 26(1): 13-17.

Crouch, G.I., (2000). Guidelines for the study of international tourism demand using regression analysis, in: Ritchie, J.R.B., Goeldner, C.R (Eds.), Travel, tourism and hospitality research: A handbook for managers and researchers. John Wiley & Sons Inc., New York, pp. 583-596.

De Long, J.B., Shleifer, A., Summers, L.H., Waldmann, R.J., (1990). Noise trader risk in financial markets, Journal of Political Economy, 98: 703-738.

Dickey, D.A., Fuller, W.A. (1981). Likelihood ratio statistics for autoregressive time series with a unit, Econometrica, 49: 1062-1063.

Engle, R., Granger, C.W.J., (1987). Co-intergration and error correction: representation, estimation and testing, Econometrica, 55: 251-276.

Fama, Eugene F., (1965). The behavior of stock-market prices, Journal of Business, 38(1): 34-105.

Fama, Eugene F., (1970). Efficient capital markets: A review of theory and empirical work, Journal of Finance, 25: 383-417.,

Froot, K.A., Scharfstein, D.S., Stein, J.C., (1993). Risk management: coordinating corporate investment and financing policies, Journal of Finance, 48: 1629-1658.,

Granger, C.W.J., (1969). Investigating causal relations by econometric model and cross-spectral methods, Econometrica, 37: 24-36.

Granger, C.W.J., (1988). Some recent development in the concept of causality, Journal of Econometrics, 39: 199-211.

Grinblatt, M., Titman S., Wermers R., (1995). Momentum investment strategies, portfolio performance and herding: a study of mutual fund behavior, American Economic Review, 85(5): 1088-1104.

Hui, T.K., Yuen, C.C., (1996). The effects of exchange rate, income, and habit on Japanese travel to Canada, Journal of Travel & Tourism Marketing, 5(3): 265-275.

Johansen, S., (1988). Statistical analysis of cointegration Vectors, Journal of Economic Dynamics and Control, 12: 231-254.

Johansen, S., (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models, Econometrica, 59(6): 1551-1580.

Johansen, S., Juselius, K., (1990). Maximum likelihood estimation and inference on cointegration with applications to demand for money, Oxford Bulletin of Economics and Statistics, 52(2): 169-210.

Kim, W., Wei, S., (2002). Foreign portfolio investors before and during a crisis, Journal of International Economics, 56(1): 77-96.

Lakonishok, J., Shleifer, A., Vishny, R.W., (1992). The impact of institutional trading on stock prices, Journal of Financial Economics, 32: 23-43.

Lee, C.K., (1996). Major determinants of international tourism demand for South Korean: Inclusion of marketing variable, In: Fesenmaier, D.R., O'Leary, J.T., Uysal, M. (Eds.), Recent advances in tourism marketing research. The Haworth Press Inc, New York, pp. pp. 101-118.

Lucas, R.E. Jr., (1972). Expectations and the neutrality of money, Journal of Economic Theory, 4(2): 103-124.

Merton, R.C., (1973). An Intertemporal Capital Asset Pricing Model, Econometrica, 41(5): 867-887.

Murphy, J.J., (1986). Technical Analysis of Futures Markets, Routledge, New York.

Nofsinger, J., Sias, R.W., (1999). Herding and feedback trading by institutional and individual investor, Journal of Finance, 54(6): 2263-2295.

Scharfstein, D.S., Stein, J.C., (1990). Herd behavior and investment, American Economic Review, 80(3): 465-479.

Sims, C.A., Stock, J.H., Watson, M.W., (1990). Inference in linear time series models with some unit roots, Econometrica, 40: 161-182.

Shiller, R.J., (2002). Bubbles, human judgment, and expert opinion, Financial Analysts Journal, 58(3): 8-26.

Shleifer, A., Vishny, W., (1997). The Limits of Arbitrage, Journal of Finance, 52(1), 35-55.

Trueman, B., (1994). Analyst forecasts and herding behavior, Review of Financial Studies. 7(1): 97-124.

Vogt, M., Wittayakorn, C., (1998). Determinants of the demand for Thailand's export of tourism, Applied Economics, 30: 711-715.

Webber, A., (2001). Exchange rate volatility and cointegration in tourism demand, Journal of Travel Research, 39(2): 398-405.

Williams, L., (1999). Long-term secrets to short-term trading, John Wiley & Sons.