Priced or Ignored? How Taiwan's Markets React to PLA Exercises

The question

Do large-scale PLA military exercises around Taiwan cause measurable abnormal moves in Taiwan’s country-risk assets, and has that reaction weakened since 2022?

Three things follow from it. Whether there is a reaction at all. Which asset moves first and hardest. And whether each successive exercise moves the market less than the one before, which is the part that would tell you something about how the market now reads these events.

Why it is worth doing

The public conversation about the Taiwan Strait runs on assertion. Escalation is described as serious, and the seriousness is taken to be self-evident. What is missing is the step that would make it checkable: naming the price that should move, saying by how much, and then looking.

There is also a specific reason to take care with the answer. A first pilot on Taiwan’s currency around the August 2022 exercises booked the prevailing dollar trend as a reaction to the drills. That pilot is being redone, and the report will draw no conclusion from it.

Method

Reactions are measured with an event study. The estimation window runs from sixty to five trading days before the event; the event window from one day before to five days after. Expected returns come from a market model rather than a constant mean, because a constant mean extrapolates whatever trend was already running and books it as a reaction. That is the error the first pilot made.

The core assets are Taiwan’s currency, controlled against the Korean won and the dollar index; the TAIEX against an emerging-market benchmark excluding Taiwan; and the premium on TSMC’s American depositary receipt against its Taipei listing, which is the cleanest available read on whether it is foreign or domestic holders who move. Five-year sovereign credit default swaps sit outside the core set, because pricing them properly needs a terminal this work does not have.

Which exercises count

The inclusion criterion is exercises announced by the PLA Eastern Theater Command under a name, plus the unnamed drills of August 2022. Daily incursions into Taiwan’s air defence identification zone are excluded: they are frequent enough that treating each as an event would measure nothing.

That gives six episodes between August 2022 and December 2025: the post-Pelosi drills, Joint Sword, Joint Sword-2024A and 2024B, Strait Thunder-2025A and Justice Mission-2025. Episode dates are being verified against primary announcements rather than secondary summaries, because published counts of these exercises disagree with each other. One episode is confounded by a major tariff announcement falling inside its window and will be reported separately rather than pooled.

What will be published

The report, the episode table with a primary source against every date, and the data and code behind the estimates. If the joint test comes back null, that is what the report will say.