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The Influence of Defense Industry Development Act on the Smooth Transition Dynamics of Stock Volatilities of Defense Industry

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  • Yi-Kai Su
  • Kae-Yih Tzeng
  • Chun-Jan Tseng
  • Cheng-Hsien Lin

Abstract

This study aims to investigate the impacts of the Defense Industry Development Act on the volatility of the defense industry as geopolitical risk is raised. Applying the smooth transition generalized autoregressive conditional heteroskedasticity (ST-GARCH) model for daily defense stocks, we demonstrate that the structure breaks in the volatility dynamics process of all defense stocks for Taiwan. The empirical findings show that most defense stocks started the adjustment process more than one year before the date of launch of Defense Industry Development Act except Magnate Technology Corporation (MTC) and China Ship Building Corporation Taiwan (CSBC). The model specification tests suggest two types of transition functions including U-shaped and Z-shaped for all defense stocks. The estimated parameters indicate that the volatilities of returns in defense stocks for Taiwan have inverted U-shaped and inverted Z-shaped patterns of structure breaks. The volatilities of defense enterprise stock return shift by the event of Defense Industry Development Act. Â JEL classification numbers: G00, G14, G18, L52.

Suggested Citation

  • Yi-Kai Su & Kae-Yih Tzeng & Chun-Jan Tseng & Cheng-Hsien Lin, 2024. "The Influence of Defense Industry Development Act on the Smooth Transition Dynamics of Stock Volatilities of Defense Industry," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 14(3), pages 1-7.
    • Handle: RePEc:spt:admaec:v:14:y:2024:i:3:f:14_3_7
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    References listed on IDEAS

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    More about this item

    Keywords

    Geopolitical; Defense industry; Volatility; Structure change; Defense Industry Development Act.;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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