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Open AccessCommentary

A Tourism Financial Conditions Index for Tourism Finance

by Chia-Lin Chang 1,2, Hui-Kuang Hsu 3 and Michael McAleer 4,5,6,7,8,*
1
Department of Applied Economics, National Chung Hsing University, Taichung 402, Taiwan
2
Department of Finance, National Chung Hsing University, Taichung 402, Taiwan
3
Department of Finance, National Pingtung University, Pingtung 912, Taiwan
4
Department of Quantitative Finance, National Tsing Hua University, Hsinchu 300, Taiwan
5
Discipline of Business Analytics, University of Sydney Business School, Darlington, NSW 2006, Australia
6
Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam, 3062 PA Rotterdam, The Netherlands
7
Department of Quantitative Economics, Complutense University of Madrid, 28040 Madrid, Spain
8
Institute of Advanced Sciences, Yokohama National University, Tokiwadai 79-1, Yokohama 240-8501, Japan
*
Author to whom correspondence should be addressed.
Challenges 2017, 8(2), 23; https://doi.org/10.3390/challe8020023
Received: 2 August 2017 / Revised: 28 August 2017 / Accepted: 31 August 2017 / Published: 7 September 2017
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_visitors (Foreign Visitor Arrivals) 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. View Full-Text
Keywords: Monetary Conditions Index; Financial Conditions Index; model-based Tourism Financial Conditions Index; unbiased estimation Monetary Conditions Index; Financial Conditions Index; model-based Tourism Financial Conditions Index; unbiased estimation
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Chang, C.-L.; Hsu, H.-K.; McAleer, M. A Tourism Financial Conditions Index for Tourism Finance. Challenges 2017, 8, 23.

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