The Impact of SGX MSCI Taiwan Index Futures on the Volatility of the Taiwan Stock Market: An EGARCH Approach

This article examines the impact of SGX MSCI Taiwan Index Futures on the volatility of the Taiwan stock market. The empirical work is conducted with the use of weekly stock returns from 1995 to 1998 and by applying an expanded EGARCH model. Our findings show that there is no structural change on either the conditional or the unconditional variance after the introduction of index futures contracts. It implies that there is no significant influence of the introduction of index futures market on the volatility of the Taiwan stock market. The robustness of the empirical findings is also tested on the basis of diagnostics performed on the estimated standardized residuals. All tests fail to show any evidence of misspecification. Keyword: Futures Market, Stock Market Volatility, EGARCH Model