The impacts of foreigner investment opening policy on the stock market has been seriously debated recently. The major purpose of this study is to investigate whether or not increasing the amount of foreigner investment will lead to more volatile stock market in Taiwan. The study applies the intervention model with the correction of outliers in time series. Nine stock index returns, two foreigner investment holding ratios, three successive foreigner investment opening policies are used in the study. Daily data is collected from April 1992 to December 1994. The total number of observations is 778. The findings are summarized as follows: (1) The rates of changes in foreigner investment holding ratios could affect both the overall stock index (TWPI) and the FINANCE stock index returns. (2) The short run and long run impacts of different foreigner investment policies on the average stock returns have shown different results. (3) Outliers could exist in the sample period. Exogenous events should be controlled in order to obtain valid conclusions. (4) The increase in the maximum amount of foreigner investment does not necessarily increase the volatility of the stock market in Taiwan.

The impacts of foreigner investment opening policy on the stock market has been seriously debated recently. The major purpose of this study is to investigate whether or not increasing the amount of foreigner investment will lead to more volatile stock market in Taiwan. The study applies the intervention model with the correction of outliers in time series. Nine stock index returns, two foreigner investment holding ratios, three successive foreigner investment opening policies are used in the study. Daily data is collected from April 1992 to December 1994. The total number of observations is 778. The findings are summarized as follows: (1) The rates of changes in foreigner investment holding ratios could affect both the overall stock index (TWPI) and the FINANCE stock index returns. (2) The short run and long run impacts of different foreigner investment policies on the average stock returns have shown different results. (3) Outliers could exist in the sample period. Exogenous events should be controlled in order to obtain valid conclusions. (4) The increase in the maximum amount of foreigner investment does not necessarily increase the volatility of the stock market in Taiwan.