The Influence of Financial Crises on Structural Breaks in the Financials Index

This research discusses structural breaks caused by financial crises in the return volatility of the financials and the electronics sector indices of Taiwan. This study uses the generalized autoregressive conditional heteroscedasticity model advanced by Glosten, Jagannathan, and Runkle to determine the conditional volatility and then uses the models of multiple structural change proposed by Bai and Perron to discover the break points. First, the factors causing the structural breaks in the return volatility of the financials and the electronics sector indices include monetary policies, changes in financial institutions, and the external impacts of international economic situations. Second, in the highest-profile events (e.g., Asian financial crisis, dot-com bubble, and global financial crisis), the structural breaks are detected in the return volatility of the financials and the electronics sector indices. The stock market in Taiwan has become more internationalized and open in recent years. The volatility of the financials and the electronics sector indices clearly continues to increase, whereas the clustering of the volatility is clearly decreasing.