The purpose of this paper is to test the relationships and the factors determining the returns and volatility among Taiwan financial markets through the dynamic process. We use Itô processes and stochastic calculus to derive the empirical hypotheses based on the assumption of financial markets affect each other. The model emphasizes the dynamic relationships among financial markets that is different from the static model in the previous literature. We find the following resutls: (1) The government stabilizes stock market by stable policy on China's military maneuver and financial crisis. (2) The source of uncertainty is foreign exchange market after financial crisis, so the government can decrease the volatility of financial markets by stabilizing foreign exchange market. (3) The stock market index increases during the New Taiwan Dollar appreciation. (4) There are four factors (interaction effect, volatility effect, return effect, dynamic factor) to determine the return of financial markets. (5) The volatility of financial markets affect each other.