VIETNAM NATIONAL UNIVERSITY HANOI UNIVERSITY OF ECONOMICS & BUSINESS FACULTY OF FINANCE AND BANKING EXAMINING THE TAIL RISK CONNECTEDNESS AMONG VIETNAMESE STOCK SECTORS Instructor : PhD. LE HONG THAI Student name : DO NGOC ANH Class : QH-2019E TCNH CLC 2 Student ID : 19050619 Ha Noi — 2023 VIETNAM NATIONAL UNIVERSITY HANOI UNIVERSITY OF ECONOMICS & BUSINESS FINANCE AND BANKING GRADUATION THESIS OUTLINE TOPIC: EXAMINING THE TAIL RISK CONNECTEDNESS AMONG VIETNAMESE STOCK SECTORS Instructor : PhD. LE HONG THAI Student name : DO NGOC ANH Class : QH-2019E TCNH CLC 2 Student ID : 19050619 Ha Noi - 2023 TABLE OF CONTENT IBLYA0)0. 1 LIST OF TABLES.cccsssscssssssssssssssssssssssseseavavecsssseseseavevecessseseasavaveceseseneavaveveusneseneneavaresensseneneanavenensaes 2 LIST OF FIGURES 100101551111111 CHAPTER 1: INTRODUCTION.
Research taSÌKS. Research subjects and scope Of SEUd|. Research QU€SfÏOI.-s-5< xé + TH HH HH 1111111111111 11111. Structure of the research.
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HH HH HH HH TH HH HH TH HH HH HH HH HH HH HH HH. Correlation Matrix taÌ@. The development and volatility of stocks in different seCtOFS. The Dynamic spillovers between tail risk of 10 StoCK Se@CtOFS.
Averaged dynamic CONNECTECNESS. Dynamic total conneCtedTn©SS. Net directional connectedness 4. Summary of the results from TVP-VAR model.
Conclusion of Chapter 4 .csceesssssesessseesseessesssessssesseessessseesseeeseessessneesseesseesseesseeseessneesseesseenees 46 CHAPTER 5: CONCLUSION AND RECOMMENDATTION. Summary of research results. The research contributÏOTS.---‹«-+-«++xs£kxs£+ketktEkirEkrEkiiiieieeike 47 5. Policy implications for the gOVernmennt.
Policy implications for ÏnV€SẨOTS. Limitations and directions for future research.cccssscssssesssssssvevscsssssseseaveveuscessseseaveveueseneseaeavaueueusneneaeasauensneseseneauaveveneneneseavavavenensaeats 51 DECLARARTION I pledge that the thesis “Examining the tail risk connectedness among Vietnamese stock sectors” is my own work, with the support of my supervisor - Dr. Le Hong Thai, and has not copied the work of others. This is my own research work.
The data and secondary information used in the thesis are sourced and have a clear origin. This statement is entirely my responsibility. Student ACKNOWLEDGEMENTS During the process of completing my graduation thesis, I received a lot of support from my teachers. First of all, I would like to thank Dr.
Le Hong Thai, who always enthusiastically guided me during the time of research and completion of the graduation thesis. In addition, I would like to express my deepest gratitude to the teachers at the University of Economics and Business - Vietnam National University who have imparted a lot of knowledge in the field of economics through basic subjects. to specialized subjects. The process of studying at the school has helped me to have a background in Finance - Banking from which [ can fully complete this research topic.
Thank you sincerely! LIST OF ABBREVIATIONS ABBREVIATIONS Full name TVP-VAR Time - Varying Parameter VAR Model ROI Return on investment ROE Return on equity VaR Value at Risk Value at Risk Conditional Value at Risk ETFs Exchange traded funds UMP Unconventional monetary policy CAViaR The conditional autoregressive value-at-risk GARCH Generalized Autoregressive Conditional Heteroskedasticity Model GIRF The generalised impulse response functions GFEVD The generalised forecast error variance decomposition NPDC The net pairwise directional connectedness COVID - 19 Coronavirus disease 2019 TCI Total Connectedness Index FED Federal Reserve System USD United States Dollar LIST OF TABLES Table 4. Corrlation maxtrix Table 4. Averaged dynamic connectedn©SS.--«-- sec nưkg LIST OF FIGURES Figure 4.----- 2< xxx HT HH TH THRHHRTHRHHRETRTTEETEELkELki 26 Figure 4.--s--ss tt th HH HH HH HH HH HH TH 27 Figure 4. -- <-c<SLk++k2+kEHH HH1.
«xxx HH nhàng KH Hà Hà Hà HH HH HH HH HH HH HH ràng Hy 30 Figure 4. Industrial Goods and Service. Food and Deverage. Dynamic total CONNECtECNESS.
Net directional CONNECTEANESS. csssssesseessessssssseesseessessseesseessessseesseesseesseesaseasersseesseesseesseesseesseestenseeaneeaneey 44 CHAPTER 1: INTRODUCTION 1. Research background Tail risk on the stock market is a phenomenon of widespread concern because It has important implications for the financial sector. Tail risk appears when the stock market has a strong uptrend and suddenly falls in a short time, the reason is the rule of supply and demand is not followed, which has a major negative impact on investors.
The stock market tail risk literature has its roots back in the late 1980s and the early 1990s, a time when numerous global stock markets experienced similar occurrences. Since the 1990s, researchers have started to understand more about tail risk, usually by examining the sources, countermeasures, methods to mitigate its effects. The first studies on tail risk for the stock market typically include: "Tail risk and asset prices” by Kelly and Jiang (2014), and "Financial markets and the allocation of capital" by Wurgler (2000). These studies show that the occurrence of tail risk is often related to economic, political and investor psychological factors.
Economic factors such as inflation, slow economic growth, and decline of economic indicators can affect the stock market and contribute to tail risk on the stock market. In addition, political and psychosocial factors are also among the factors that cause tail risk on the stock market. Typically political events, policy changes, and wars between countries around the world can also affect the stock market and cause tail risk on the stock market. Last but not least, investor psychology factors such as panic, fear and greed of general investors can also contribute to tail risk on the stock market.
Research articles on tail risk to the stock market play an extremely important role for investors, risk managers as well as economic and financial policymakers. The research results can help policy decisions be made more scientifically, thereby ensuring the stability and low risk of the stock markets of some countries around the world. With the results and knowledge of previous studies, the author conducts the study "Examining the tail risk connectedness among Vietnamese stock sectors". This thesis aims to explore the dependency structure between tail risk and stock market return.
This dependency structure in this study is evaluated quite deeply by using the TVP-VAR method combining the connectedness method of Diebold and Yilmaz (2009, 2012, 2014) and Koop and Korobilis (2014). The period from February 2022 to October 4 2022 is covered to investigate the impact of tail risk on the returns of securities industries. This time period was also chosen to focus especially on economic - political factors such as: the geopolitical fluctuations between Italy and France, the Russo- Ukrainian war, inflation, or the new Omicron mutation to show the cause of tail risk and its impact on the stock market. Although there are many studies on the impact of oil prices on the stock market, as far as we know, there is almost no research on the impact of oil prices on the profitability of Vietnam's securities industry.
Another novelty of study is the ability to identify stock sectors being potential transmitters and recipients of volatility shocks. This will help the regulators come up with policies to prevent systemic shocks to the stock market. Research objectives Analyzing and assessing the influence of events that are likely to create tail risk on stock prices in various sectors is the major goal of the study on the effects of tail risk on sectors in the Vietnamese stock market. This study will examine the effects and then suggest solutions to reduce tail risk's negative effects on stock market participants and investors.
Research tasks This study will conduct the following tasks: - To identify and compute the tail risk among stock sectors. - To examine the connectedness in tail risk among stock sectors. - To propose solutions to minimize the impact of tail risks on sectors in the domestic and foreign stock markets. With these goals, this thesis will offer crucial information to investors and risk management organizations, enabling them to make better risk management and investment choices for their investments.
Research subjects and scope of study The research subject: Tail risk on the Vietnamese stock market. Scope of study: Stock sectors in Vietnam’s stock market from February 2022 to October 2022. Research question Specifically, this thesis intends to answer the following three research questions: - How are stock price movements of different sectors in the Vietnamese stock market from February 2022 to October 2022? - Is there a linkage in the tail risks among stock sectors? - What can be implemented to reduce the negative impacts of tail risk connectedness in the Vietnamese stock market? 1. Structure of the research This research consists of five chapters.
In chapter 1, I introduce the topics, objectives and questions of research. Next, I present the theoretical bases and review of the related literature at chapter 2. In chapter 3, I present research methodology, data sources and method of process data. Chapter 4 discusses the research result.
Finally, chapter 5 concludes conclusion and recommendations on the research problem. CHAPTER 2: LITERATURE REVIEW 2. Chapter introduction Chapter 2 gives a general summary of how sectors on stock market may be impacted by tail risk. Following a discussion of the variables influencing stock price changes, chapter discuss on determining what tail risk is, its causes, how to evaluate it, and then how to reduce its negative effects.
This chapter will give a analysis of tail risk from earlier studies, demonstrating the connection between tail risk and stock market returns. Furthermore, the research also tries to highlight prospective lines of inquiry that could be investigated further. Factors that affect stock price volatility Stock prices change on a daily basis and this is affected by many factors, including: Industry-specific factors such as regulatory changes, new technologies, and changing consumer preferences, can all impact the stock prices of companies Supply and Demand: The fundamentals of supply and demand can also impact stock prices. If there are more buyers than sellers, it can increase the stock price, while if there are more sellers than buyers, it can lead to a lower share price.
Economic Indicators: Stock prices can be influenced by economic indicators such as GDP, inflation, interest rates. The value of stocks can increase or decrease depending on the health of the economy. Political and Geopolitical Events such as elections, trade negotiations, military conflicts can cause stock price fluctuations, as investors may react response to potential impacts on the economy and markets. Factors related to the company like: company performance, owner structure, dividend policy, financial leverage, etc are used by investors as information and reference, so they will change the stock price.
Several empirical studies have attempted to analyze the effects of profitability, systematic risk, leverage, dividend policy and institutional ownership on stock prices. The results obtained are two directions of impact: positive influence and negative influence. Research conducted by Kurniawati et al. (2022) shows that institutional 7 ownership has a positive and significant relationship with stock prices, which is in contrast to studies conducted.
For the research paper of the authors Meythi et al. (2011), it shows the opposite result that profit has a negative impact and does not significantly affect stock prices in the manufacturing industry. For Prasetyo's research (2013), the author shows that there is a positive and significant relationship between leverage and profitability (gross profit margin) and stock price. Furthermore, research conducted by Wulandari, Dhita shows that there is a positive and significant relationship between profitability (ROI), debt-to-equity ratio and beta (risk system) with stock prices.
Research conducted by Masum (2014) also shows that profitability expressed by return on equity and dividend policy has a positive and significant relationship with stock price. In addition to the above positive results, there are also studies showing a negative relationship in particular with the research done by Hashemijoo, Ardekani, and Younesi (2012) showing that dividend payout is significantly negatively correlated. with stock prices. In addition, the study by Elangkumaran and Nimalathasan (2022) shows different results, in which leverage has a negative and insignificant relationship with stock price.