# 17-071/III (2017-08-04)

Author(s)
Chia-Lin Chang, Department of Applied Economics, Department of Finance, National Chung Hsing University, Taiwan; Hui-Kuang Hsu, Department of Finance, National Pingtung University, Taiwan; Michael McAleer, National Tsing Hua University, Taiwan; University of Sydney Business School, Australia; Erasmus University Rotterdam, The Netherlands;Complutense University of Madrid, Spain; Yokohama National University, Japan
Keywords:
Monetary Conditions Index, Financial Conditions Index, Model-based Tourism Financial Conditions Index, Unbiased Estimation
JEL codes:
B41,E44, E47, G32

The paper uses monthly data on tourism related factors from April 2005 - June 2016 for Taiwan that applies factor analysis and Chang’s (2015) 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 statistically significant using the estimated conditional mean of the tourism stock index returns (RTS). Granger Causality tests show that TFCI shows strong feedback on RTS. An interesting insight is that the empirical results show a significant negative correlation between F1_visistors and RTS, implying that tourism authorities might promote travel by the “rich”, and not only on inbound visitor growth. The use of market returns on the tourism stock sub-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.