Internationalization of the Taiwan Financial Industry: Equity Markets, Efficiency and Short-Term Capital Flows

Abstract

Strong, developed economies need well-functioning equity markets. Such markets require openness. Open equity markets attract different types of investors, some more useful than others. Just like in the debt market, the equity investors who best serve the social good are those who seek to understand the economic fundamentals underlying corporate profitability. Other, momentum, investors are more like gamblers whose presence is largely unavoidable, and who contribute little to economic efficiency or financial stability. The regulatory challenge is to mitigate the effects of momentum investors without discouraging the fundamental investors.