BANKING ACADEMY ADVANCED PROGRAM BANKING FACULTY ---------- GRADUATION THESIS Title: Forecasting and risk management in Vietnam Stock Market Student: Le Hai Nam Class: K19CLC-NHB Cohort: 2016-2020 Student code: 19A4000420 Supervisor: Dr. Tran Manh Ha Hanoi, June 2020 ACKNOWLEDGEMENTS I am grateful to Dr. Tran Manh Ha, lecturer in the Banking Faculty, who instructs me throughout this Thesis. I am extremely thankful and indebted to him for spending valuable time to share expertise, precious guidance and encouragement extended to me.
I take this opportunity to express gratitude to all of the lecturers in Banking Academy in general and Banking Faculty lecturers in particular for their conscientious and support. I also thank my parents for the unceasing encouragement, support and attention. I also place on record, my sense of gratitude to one and all, who directly or indirectly, have lent their hand in this thesis. STATEMENT OF AUTHORSHIP Name: Le Hai Nam Class: K19CLC-NHB Students’ Numbers: 19A4000420 Supervisor: Dr.
Tran Manh Ha Name of research paper: Literature review about forecasting and risk management in Vietnam Stock Market Declaration I declare that this thesis has been composed solely by myself and that it has not been submitted, in whole or in part, in any previous application for a degree. Except where states otherwise by reference or acknowledgment, the work presented is entirely my own. TABLE OF CONTENT ACKNOWLEDGEMENTS. STATEMENT OF AUTHORSHIP.
LIST OF ACRONYMS. LIST OF FIGURES. LIST OF TABLES .1 CHAPTER 2: CONCEPTUAL FRAMEWORK OF VALUE AT RISK. Definition of risk and risk management:.
Theoretical framework of Value at Risk (VaR):. Conceptual framework of Historical Simulation. Conceptual framework of EWMA. Conceptual framework of GARCH model:.
Unconditional coverage test. Conditional coverage test .14 CHAPTER 3: APPLICATION OF VALUE AT RISK MODELS IN VIETNAM STOCK MARKET. Findings of prior research:. Overview of Vietnam stock market:.
Vietnam stock market’s data illustration:. VaR model suggestion for Vietnam stock market:. The legal framework:. Preparation of risk management for institutions: .56 LIST OF ACRONYMS Value at Risk VaR HOSE Ho Chi Minh City Stock Exchange HNX Hanoi Stock Exchange HS Historical Simulation EWMA Exponentially Weighted Moving Average GARCH Generalized Autoregressive Conditional Heteroskedasticity VSE Vietnam Stock Exchange LIST OF FIGURES Name Page Figure 1.
Log-returns for the period July 1st, 2006 - June 30th, 2017 17 Figure 2. Daily Return on BSE Sensex (1991-2012) 18 Figure 3. The return of S&P BSE Bankex index 19 Figure 4. Daily Stock prices returns of Karachi, Bombay, Singapore 22 and Kuala Lumpur stock Exchanges from 2008 to 2017 Figure 5.
Daily return of VN-Index (2005-2016) 24 Figure 6. Daily return of VSE (09/02/2007 - 30/10/2015) 25 Figure 7. Daily return of VN-Index from 2007 to 2020 26 Figure 8. VN-Index stock price in the period 2000 – 2020 29 Figure 9.
Number of listed companies in HOSE and HNX 33 Figure 10. The structure of enterprises listed on HOSE by industry 34 Figure 11. Number of foreign investors in Vietnam in the 35 period of 2015 – 2020 Figure 12. Transaction statistics of foreign investors for the 36 period 2007 – 2020 Figure 13.
Market capitalization of Vietnam stock market in the 37 period of 2006 – 2020 Figure 14. Time series of VN-Index in the period of 2014 – 2018 38 Figure 15. Time series of stock price of VCB, MBB and CTG from 41 5/1/2015 to 28/2/2020 Figure 16. Time series of stock price of NKG, HSG and HPG from 43 5/1/2015 to 29/2/2020 Figure 17.
Time series of stock price of HBC, C47 and LCG from 45 5/1/2015 to 29/2/2020 Figure 18. Daily log return of VN-Index from January 2015 to February 47 2020 Figure 19. Daily log return of Bank’s stock from January 2015 48 to February 2020 Figure 20. Daily log return of Steel’s stock from January 2015 49 to February 2020 Figure 21.
Daily log return of Construction’s stock from January 2015 50 to February 2017 LIST OF TABLES Name Page Table 1. Descriptive statistics of daily returns of Chinese Indexes 21 Table 2. Descriptive statistics of daily stock return and daily stock market 46 return CHAPTER 1: INTRODUCTION Over many years of development, in recent time, the stock market is one of the best channel for people to mobilize fund for their businesses. The emergence of the stock market has an important role as an intermediary in the capital flow both domestically and internationally, connecting the sellers who want to make profit to the buyers who need capital to run their businesses.
However, businesses have to follow the economic cycle, go through four main stages: start-ups, growth, maturity, and recession. The fluctuation in business activities and the economy may be the main reasons causing the volatility in stock market. It make some influences to the earlier prediction of portfolio, which are known as risks involved in investing. Consequently, the forecast, measurement and risk management is very important and urgent for institutions and individuals to minimize losses and guarantee the stable operation in business and investment activities.
In financial risk management, only qualitative analysis is not sufficient. To reach more effective result, we should combine it with quantitative indicators to measure risk and financial losses. This is the basis for the development of quantitative method in risk management. Through the long history of risk management in the financial market, many models like SIM, EPG, VaR, which are concerned about the expected return as well as the risk of stocks, portfolios was exercised.
It is true that each risk model has pros and cons but VaR is the most common model in stock analysis. This is the method of evaluating the risk of a portfolio by two criteria such as the value of the portfolio and the risk tolerance of the investor. However, the usage of VaR risk measurement is equivalent to using traditional measure like variances or standard deviation. Therefore, many economists have extended the methods for calculating the VaR of stocks or categories that are most commonly used, namely the ARCH, GARCH.
Vietnam stock market is very young, has been only opened since July 2020 but this is remarkable progress. It has made a great contribution to form a relatively 1 comprehensive capital market model, create and activate a mid-term and long-term capital mobilization channel for the economy. There are many evidences to proof the amazing development of Vietnam’s stock market. In the first day of opening, only two companies listed on the Ho Chi Minh City Stock Exchange (HOSE).
However, on February 2020, the data of State Security Commission of Vietnam (SSC) showed that 1,628 listed companies included 378 listed companies on HOSE, 367 listed organizations on Hanoi Stock Exchange (HNX) and 883 firms have transaction on Unlisted Public Company Market (UPCoM). As to the market capitalization, as of December 29th, 2020, market capitalization reached VND 4,384 trillion, up 11% from the end of 2018, equivalent to 79.2% of Vietnamese GDP. Nevertheless, in the 20-year period of operation, Vietnam’s stock market recorded numerous big fluctuations. From the beginning to 2017, this is the rise period.
The VN- Index increased from 131.44 point on September 27th, 2003 to a record high on March 12, 2007 with 1,179.32 points, up nearly 9 times. However, under the effect of economic crisis, from late 2007 to early 2009, the VN-Index fell rapidly to the bottom with only 235.5 points on February 24th, 2009. Within the time span of 8 years commencing from 2009 to 2016, Vietnam’s stock market witnessed a fluctuation when VN-Index increased and decreased intermingle. From 2016 until now, thanks to economic recovery and the positive business result of many corporations, the stock market in Vietnam entered a period of strong growth and became one of the most promising market in the world.
VN-Index was considered as the strongest growth index in world in the first quarter of 2018, with the peak at 1,200 points in April 2018, surpass the data in March, 2017. After the rapid downfall in the second quarter of 2018, VN-Index recorded a slight rehabilitation in 2019. Unfortunately, with the appearance of 2019 coronavirus pandemic, Vietnam’s stock market witnessed the worst session from 2014 in March 2020. Thus, the above data has demonstrated the strong fluctuation of the stock market in Vietnam.
The prices of stocks are always changing over time, it means there are many risks threatened investors when they enter the market without fully preparation. Thus, 2 understanding and forecasting the volatility of stocks’ price as well as predicting adverse events making the downfall of prices, such as 2019 coronavirus pandemic, is vital for investors and finance managers to gain profit and reduce loss. Moreover, there are many methods for economists to forecast and manage risk in the stock market but each method has pros and cons. The most plausible forecast model for market is very important because each market has their own performance so we cannot use the same model for every markets.
This is the motivation for me to do this thesis statement. In this study, the secondary data of historic stock prices which were collected from January 1st, 2015 to February 29th, 2020 is used in order to describe the trend of Vietnam’s stock market in several lately years. All selected companies listed on Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). The objective of this research is providing the knowledge of VaR models and suggesting the suitable model for Vietnam’s stock market.
However, with each risk measurement model, specific assumptions, such as market hypotheses, investor hypotheses are used. Therefore, in order to clarify the statement’s objectives, the author focuses on following specific targets: - Briefly overview of theoretical models used in forecasting Vietnam’s stock market in recent time. - Provide the overview of Vietnam’s stock market, with the data of some outstanding industry to describe the volatility in some lately years. - Based on numerous previous research about risk forecast model, suggest the suitable model for Vietnam market.
Within the scope of the literature review, quantitative methods are used so as to illuminate advance research objectives, including three most common VaR models: Historical Simulation (HS), Exponentially Weighted Moving Average (EWMA) and the Generalized Autoregressive Conditional Heteroskedasticity (GARCH). There are five chapters in this thesis. In chapter 1, this is the presentation of overview and problem statement, the objectives of the research methodology. Chapter 3 2 supplied some theory about VaR and three models: HS, EWMA and GARCH.
According to chapter 3, the author will provide the overview of Vietnam stock market. Chapter 4 is the overview of some prior research, describing the data description of Vietnam Stock Market in the chosen period and the suggestion of suitable forecasting model. Finally, the author will provide some regulator about risk management and the requirement of using forecasting models for the financial institutions in chapter 5. 4 CHAPTER 2: CONCEPTUAL FRAMEWORK OF VALUE AT RISK 2.
Definition of risk and risk management: Many people think that financial risk is the risk associated with financial outcome of one sort or another, but the definition of risk is more complicated. It evokes notions of uncertainty, randomness, and probability. The random out can be positive (e., we might gain profit from investing) or negative (e., we might suffer the financial loss), and we may (or may not) prefer to focus on the risk associated with ‘bad’ event, presumably with a view to trying protect ourselves against them. The notion of ‘risk’ is very broaden with many facets, and no single definition of risk can be satisfied every situations.
However, for specific purpose like ours, a plausible definition is considering financial risk as the prospect financial loss – or gain – because of unpredictable or random changes in underlying risk factors.