The Central Bank Communication Effect on the Stock Market — A Case of Taiwan’s Central Bank Press Release

Abstract

This research investigates the effect of Taiwan’s central bank communication policy on the stock market using high-frequency data from the Taiwan Capitalization Weighted Stock Index (TAIEX) after the 2007 financial crisis Specifically this study explores the impact of news on the direction of stock price adjustments and the time it takes for stock prices to respond to the news I distinguish between the expected and unexpected parts of the central bank statement and use the ordered probit model to simulate the expected psychological attitudes of market participants Then the ordinary least squares model is used to analyze the effect of communication policies on the stock market I find that an unexpected central bank communication has statistically significant and economically relevant effects on stock market The stock market responds quickly to new information and the new information is fully reflected in about 15 minutes In other words Taiwan's central bank is able to affect the stock market by using the communication policy and the central bank's communication policy is an important monetary policy tool today

Date of Award	2020
Original language	English
Supervisor	Ya-ming Liu (Supervisor)