VIETNAM-NETHERLANDS PROGRAM FOR MASTER OF ARTS IN DEVELOPMENT ECONOMICS THESIS THE IMPACT OF MACROECONOMIC ENVIRONMENT ON VIETNAM STOCK RETURNS HUYNH PHI LONG CLASS 18 A thesis submitted in Partial Fulfillment of the Requirements for the Degree of Master of Arts in Development Economics Under the Supervision of Prof. Nguyen Trong Hoai Ho Chi Minh city, NOVEMBER 2015 TIEU LUAN MOI download : skknchat@gmail.com DECLARATION This is to certify that this thesis entitled “The Impact of Macroeconomic environment on Vietnam stock return,” which is submitted by me in fulfillment of the requirements for the degree of Master of Art in Development Economic to the Vietnam – Netherland program. Thesis constitutes with my work and good supervision Assoc, Prof. Nguyen Trong Hoai and acknowledgment that have been made in the text in all material used.
HUYNH PHI LONG ii TIEU LUAN MOI download : skknchat@gmail.com ACKNOWLEGMENT First of all, I would like to express my appreciation to my supervisor, Prof Dr. Nguyen Trong Hoai, for his invaluable advice and encouragement in during the time that I do my thesis. I have been lucky to have a supervisor who care so much my thesis and answered to all my question. Without his guidance, my thesis would not be finished.
I would like to give my special thanks to Dr. Pham Khanh Nam and Dr. Truong Dang Thuy for his valuable suggestion that help to complete my thesis. Third, I would like to give my appreciation to all the lecture at the Vietnam – Netherland programme for their knowledge of all the course, during the time I studied at the programme.
iii TIEU LUAN MOI download : skknchat@gmail.com ABSTRACT This paper estimates the impact of macroeconomic environment on Vietnam stock returns and drawing the conclusion of the impact of macro variables on stock market in order to offer some appropriate policies to improve stock market and provide investors of more information. This study uses multiple regression analysis with monthly dataset for recent years from 01/2004 to 08/2013 to evaluate the relationship between macroeconomic factors and stock returns. The model explains well the movement of stock return and shows that three variables (CPI, S&P500 and exchange rate) have significant effects on performance. iv TIEU LUAN MOI download : skknchat@gmail.com TABLE OF CONTENT Chapter 1 INTRODUCTION .4 Research scope and data.
4 Chapter 2 LITERATURE REVIEW .1 Endogenous growth theory .3 The results of testing the influence of macroeconomic factors on world stock markets. An overview of the relationship between stock and macro factors in each country. Evidence from stock markets: Brazil, India, China, Russia. Empirical evidence in Thailand.
Evidence from stock market in London. The impacts of Industry production on stock return. The impact of inflation on stock return. The impact of interest rate on stock return.
The impact of exchange rate on stock return. The impact of oil price on stock return. The impact of gold price on stock return. The impact of different stock markets on each other.
25 v TIEU LUAN MOI download : skknchat@gmail.com Chapter 3 RESEARCH METHODOLOGY. 30 Chapter 4 RESEARCH RESULTS .The impacts of Industry production on stock market. The impact of inflation on stock market. The impact of interest rate on stock market.
The impact of exchange rate on stock market. The impact of oil price on stock market. The impact of gold price on stock market. The impact of different stock markets on each other.2 Analyzing the return of investment (ROI) of VN-index by the multivariate model.
The multivariate model .1 Summary of results .3 Limitation of the study. 58 SOURCE OF DATA. 68 vi TIEU LUAN MOI download : skknchat@gmail.com LIST OF TABLE Table 2.1 The expected sign of variable in model .2 The correlation on the sample observations .3 The result of regression model. 42 vii TIEU LUAN MOI download : skknchat@gmail.com LIST OF FIGURE Figure 3.
The proportion of the value of good in Viet nam. VN index and Industrial production. VN index and Inflation. VN-Index and interest rate.
Vn index and exchange rate. Vn index and Oil price. Vn index and Gold price. Vn index and S&P 500.
40 viii TIEU LUAN MOI download : skknchat@gmail.com CHAPTER 1: INTRODUCTION 1. Problem Statement Pramod K Complaints and Puja Vidhi (2012) showed that stock market has an indirect impact on the developing by playing a crucial role in its two primary components: industry and commerce. Therefore, in the investors view, the stock market also occupy an important position. Securities is reputedly a source of long – term capital.
In consequences, investors could supply capital to companies which are in case of need through the stock market. In another word, securities allow companies to expand their business as well as provide a surplus fund to the capital market. Before investing in securities, investors should have a thorough grasp of the market by observing the fluctuation of different index. Analysing the various indicators is an effective method to have a comprehensive view of the stock market.
Then, investors can forecast the trend of stock market in the future, make up efficient portfolio to gain the highest profit. The efficient market hypothesis proposed by Fama (1970) placed a very significant economic theory for policy makers and investors. Accordingly, policy makers are free to implement global policies without worrying about changing the essence of stock market, since they only change the share prices. Also, economic theory hypothesizes that stock price reflects not only the available information but also the expectation of firms’ future operation.
If stock price can accurately reflect the macro environment, it can also be used to be an indicator of future global conditions. Therefore, studying the causality and mutual interactions between macro variables and stock price is of great important when the Government is considering any policies for the nation. In the literature, relations between economic variables have been researched to give explanations to those relations, specifically, the effects of macroeconomic variables such as industry production, money supply, inflation, exchange rate, gold price, etc., on the stock price, and the relation between those macro variables. In Vietnam, changes in global policies and macro variables are often occurring abruptly, leading to strong effects, which are both 1 TIEU LUAN MOI download : skknchat@gmail.com negative and positive, to investors’ sentiment.
By applying econometric models, we may have the more general view of the risks and volatility of VN index, generating forecasts and cautionary for investment activities. That research are based on econometric tests with highly reliable data and general view of the yield on Vietnam stock market. However, many research has proceeded for the stock market and economic factors, and, therefore the conclusions may not be enough. As a result, it has been argued that the risk factors from the local rather than risk factors from the world are the primary cause of variation in the stock market According to Hooper, Brailsford, and Bilson (1999) solve the problem of macroeconomic variables that can derive from sources of local risks.
Sims and Maysami have used Error Correction Modelling techniques to check the relationship between macroeconomic variables and profit shares in Hong Kong and Singapore ( Koon., Wee and Maysami (2004)). Through the Koon., Wee and Maysami (2004), their methods had facilitated to infer relationships between the variables short-term macroeconomic adjustment and balanced long-term, they analyzed the impact of interest rates and inflation, money supply, exchange rates and fluctuations, in fact, with a dummy variable to capture the effects of the Asian financial crisis in 1997. The results can be verified that the impact of macroeconomic variables on the stock market index in each of the six countries being studied, although the type and size of different associations depending on the financial structure of each country. Agrawalla (2010) attempts to find whether the economic factor can reflect stock price.
The relations of some macroeconomic factors may change from markets to markets; may vary during various form and also at different frequencies of data. Therefore, much intensive research necessary for understanding the macroeconomic variables that can affect the stock market. Moreover, the capital markets have experienced significant changes when to apply the policy liberalization, and it became more open to international investor The reform of market and potential economic had attracted a large number of foreign institutional investors in the stock exchange. 2 TIEU LUAN MOI download : skknchat@gmail.com Vietnam stock market opened on 28 July 2000 with only two stocks, and now in 2013, it has over 700 stocks with the market cap of about VND 964000 billion, equivalent to 31% of GDP.
Since inception, Vietnam stock market has benefited the economy. Firstly, when investors buy shares, they contribute their money to the company’s business. The Government and local authority also raise fund to invest and develop economic infrastructure. Secondly, stock market offers investors a healthy investment environment with a lot of investment options, and this is a new investment channel with high liquidity, apart from the traditional ones such as gold, forex, and real estates.
Thirdly, stock market helps to improve the transparency of companies’ business, providing an ambitious investment scheme, hence improving the capital efficiency, giving companies incentive to apply new technologies. Fourthly, the stock market index reflects the economy promptly on time and accurately. Stock price increasing implies investment expansion and a growing economy, and vice versa. Therefore, the stock market is seen as an indicator of the economy and an important channel for the Government to implement macroeconomic policy.
In the past few years, the world economy has experienced several critical period and facing challenges such as recession, inflation, unemployment. Vietnam is not an exception, as it also has troubles with high inflation, budget deficit, high sovereign debt, fluctuated exchange rate… These effects are not only on the economy but also on the stock market. Therefore, studying the impacts of macro variables on the stock market is crucial. The paper aims to provide new evident for investors and companies as well as policy makers about the role of macro variables before they participate in the stock exchange as well as design appropriate policies related to stcok market in Vietnam.
Determining the impact of macroeconomic environment on Vietnam stock returns. 3 TIEU LUAN MOI download : skknchat@gmail. Drawing the conclusion of the impact of macro variables on stock market in order to offer some appropriate policies to improve stock market activity and provide investors of more information. Research Questions There are two keys research questions to be answered as below: 1.
Can internal macro variables such as inflation, exchange rate, oil price explain stock return? 2. Can external variables such as the US stock market affect stock price? 1. Research scope and data This study tests the impact of macroeconomic environment on Vietnam stock returns. From the findings of this paper, this study uses multiple regression with monthly dataset for recent years from 01/2004 to 08/2013 to test the relationship between stock returns and macroeconomic variables (industry production, inflation, interest rate, exchange rate, oil price, gold price, different stock markets).
Structure of the Thesis The paper contain four chapters: chapter 2 introduces theoretical and empirical studies about the impact of macroeconomic factors (industry production, inflation, interest rate, exchange rate, oil price, gold price, different stock markets) on Vietnam stock return. Chapter 3 presents regression model and key variables that is used in this paper. Chapter 4 provides an overview about the impact of macroeconomic environment on Vietnam stock returns. Moreover, the descriptive statistics of the sample are also refered in this chapter.
Concurrently, analyzing and discussing the regression results are also mentioned in this part. Chapter 5 summarizes analyses and results from the previous parts to propose recommendations and related policies as well as the limitations of this study. 4 TIEU LUAN MOI download : skknchat@gmail.