Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE AND INVESTMENT DISSERTATION ON THE IMPACT OF INTERNATIONAL FACTORS ON VIETNAM STOCK MARKET TA THUY QUYNH ID No: 23081365 Intake 07 Supervisor: Dr. NGUYEN THANH NHAN 09/2024 DISSERTATION CONFIRMATION PAGE Student’s name: Ta Thuy Quynh Student number: 23081365 Supervisor’s name: Dr. Nguyen Thanh Nhan I, Dr. Nguyen Thanh Nhan hereby confirm that I have supervised the research and preparation of the student’s dissertation.
I have reviewed the content, structure, and methodology used in the Dissertation and found it to be of satisfactory quality I am confident that the Dissertation meets the requirements set forth by the University of the West of England and is ready for examination. Signature of Student and date Signature of Supervisor and date Date: 08/09/2024 Date: 08/09/2024 ACKNOWLEDGEMENT First and foremost, I would like to express my sincerely thank to my supervisor for her patience, enthusiasm, and knowledge as well as for her ongoing support of my research and studies. Her advice was helpful to me throughout the entire research and writing process for this project. Without her unwavering encouragement, I could not have finished this dissertation.
In addition to my supervisor, I would like to thank every teacher who has contributed useful information. Without their guidance and support, my dissertation would not have been able to be completed. Lastly, I want to express my gratitude to my friend, who has always provided me with insightful guidance on data processing so that I may finish this dissertation. I TABLE OF CONTENTS LIST OF FIGURES AND TABLES.
Research method and data .12 CHAPTER 2: LITERATURE REVIEW. Factors affecting stock market. Descriptive Statistics and Correlation Matrix. Estimate the long-term coefficients of the model.
Estimate the short-run coefficients of the model. Model Diagnostic Tests. Some limitations and future research directions. 58 III LIST OF FIGURES AND TABLES Figure 1.
World crude oil price developments from January 2008 to December 2023. World gold price developments in the period of January 2008 - December 2023. Deposit Interest Rate in Vietnam. Growth rate of VN-Index and HOSE capitalization from 2007 to 2022 28 Figure 5.
Volatility of the stock ratio in the short and long term. Stationary of the variables. Stationary of the variables at first differences. ARDL model results.
Long-term coefficients. Short-run coefficients. Variance Heterogeneity Test. Estimation results after addressing the issue of heteroscedasticity.
Standard Normality test. Model Specification test.42 V ABSTRACT The stock market is one of the important financial markets of a developed economy and is an effective and popular investment channel for many investors. Market fluctuations with risks and opportunities are always attractive topics for researchers. Over 20 years, the Vietnamese stock market has continuously developed and achieved many successes.
The fluctuation of the stock market is impacted by many factors containing international and domestic factors. This paper investigated about the impact of international factors on Vietnam stock market, based on the data of CPI, saving rate of SBV, USD/VND exchange rate, oil price, gold price, and US yield in the period from January 2008 to December 2023. The researcher examined six hypothesizes as well as six relationships between stock prices and each six influencing factors by applying ADRL research model and testing on R software. On the one hand, ADRL test results indicated that oil price impacts positively on stock price in the short term and negatively on stock price in the long term.
US yield impacts positively on stock price in the short term. USD/VND exchange rate impacts negatively on stock price in the short term. Saving rate of SBV impacts negatively on stock price in the short term. Other factors containing gold price and CPI has no effect on stock price.
However, the researcher provided evidence to support the researcher’s opinion and concluded that gold price and CPI impact positively on stock market.Research issues The stock market is one of the important financial institutions of a developed economy and is an effective and popular investment channel for many investors. Market fluctuations with risks and opportunities are always attractive topics for researchers. Over the past 20 years, the Vietnamese stock market has continuously developed and achieved many successes. The ups and downs of the stock market are affected by many factors, including the impact of macroeconomic factors.
Among the factors affecting the stock market, macroeconomic factors have received much attention from domestic and foreign researchers. Variables such as economic growth rate (GDP), consumer price index (CPI), interest rates and exchange rates have been analyzed by many researchers for their impact on the stock market, such as the study of Phan Thi Bich Nguyet and Pham Duong Phuong Thao (2013) - Analyzing the impact of macroeconomic factors on the Vietnamese stock market or the study of Le Hoang Phong (2015) - Verifying the impact of macroeconomic factors on the Vietnamese stock index using the ARDL model. However, the conclusions about the relationship between those macroeconomic factors and the stock market have not been clearly unified. Vietnam's trade deficit in recent years has pushed up the demand for foreign currency.
In addition, Vietnam's foreign exchange reserves are still modest, creating pressure on state agencies to control the USD/VND exchange rate. In addition, fluctuations in exchange rates deeply affect many economic factors such as import and export activities, inflation and economic growth. When the exchange rate increases, it will be favorable for exporting enterprises but disadvantageous for 2 importing enterprises. Therefore, the exchange rate has different impacts on business results when enterprises have cash flows in foreign currencies.
In addition, the exchange rate also affects the investment cash flow of foreign investors. Investors will actively buy stocks when the domestic currency is weakened, but if the domestic currency continuously depreciates, it will hinder foreign capital flows due to exchange rate risks. Currently, there have been a number of articles analyzing the impact of macroeconomic variables on the Vietnamese stock market, such as the research by Phan Thi Bich Nguyet and Pham Duong Phuong Thao (2013) - Analyzing the impact of macroeconomic factors on the Vietnamese stock market or the research by Le Hoang Phong (2015) - Verifying the impact of macroeconomic factors on the Vietnamese stock index using the ARDL model. However, the conclusions of these studies are not consistent.
Therefore, after consideration, the author decided to choose the topic: "The impact of international factors on Vietnam stock market".Research background Currently, there have been many studies on international factors impacting on stock markets in the world such as the study of Richards and Simpson (2009) - The Interaction between Exchange rates and Stock prices: An Australian Context or the study of Agrawal (2010) - A study of Exchange rates movement and Stock market volatility. In Vietnam, there are also some articles analyzing the impact of exchange rates on the stock market along with some other macro factors such as Truong Dong Loc (2014) - Factors affecting stock price changes: Evidence from the Ho Chi Minh City Stock Exchange (HOSE) or Le Hoang Phong and Dang Thi Bach Van (2015) 3 - Verifying the impact of macro factors on Vietnam's stock index using the ARDL model. The results show that the relationship between some international factors and the stock market has almost no common trend for all markets. In addition, the empirical results in Vietnam are not clear and consistent.1 Foreign studies Abdalla and Murinde (1997) conducted a study on the interactions between exchange rates and stock price indices in the financial markets of four emerging countries including India, Korea, Pakistan and the Philippines.
The authors investigated the relationship between price pass-through into the stock market and the foreign exchange market to propose some exchange rate policies to develop the stock market. Using a monthly time series from January 1985 to July 1994, the variables used in the model were the monthly real exchange rate (REER) and the country's stock price index and the IFC stock market index. The data were taken from Morgan Guaranty Trust (New York), Bloomberg and Datastream. The authors tested Engle and Granger cointegration to find out the long-run relationship of the variables.
The results obtained are that there is no cointegration relationship in the Korean and Pakistani markets, but there is a cointegration relationship in the Indian and Philippine markets. Then the author uses two types of Granger tests for the above two cases. For the Korean and Pakistani markets, the author uses the standard Granger test, while for the Indian and Philippine markets, the author uses the Granger test based on the ECM model. The author decides to choose the optimal lag R2 after determining the optimal lag for the model.
Other tests performed include the Chow test, the White test to check for heteroscedasticity, and the Lagrange multiplier (LM) test to check for autocorrelation. Finally, the author 4 calculates the correlation coefficient of the income levels in the four markets mentioned above to find out whether there is an interaction relationship between them or not. The results obtained are that there is no consistency between the markets. In the Philippines, there is no long-run relationship between exchange rate and stock price index but there is impact of stock on exchange rate according to causality test.
In Pakistan, Korea and India, there is short-run and long-run relationship and impact of exchange rate on stock price. The authors find that for emerging countries like the above four countries, caution should be exercised in choosing exchange rate policies because changes in exchange rate will affect import-export companies and affect stock prices. Nath and Samanta (2003) examined the dynamic relationship between stock market and foreign exchange market in India. Their study shows that there is no relationship between stock market returns and foreign exchange market although there is impact of foreign exchange market returns on stock market returns in recent years.
The author uses daily data series from March 1993 to December 2002. The author studies the S&P CNX NIFTY stock index representing the Indian stock market and the exchange rate between Indian Rupee and US dollar. The variables are taken as natural logarithms for analysis. The authors test Johansen (1991) cointegration to see if there is a long-run relationship between the variables.
The results show that there is no cointegration relationship. The Granger test is used to test the causal relationship between the variables. The results show that for the first period, there is no causal relationship. If we consider each year, the author finds that in the years 1993, 2001 and 2002, there is an impact of stock prices on foreign 5 exchange market returns.
In 1997 and 2002, there was a causal relationship between exchange rates and foreign exchange markets but it was not significant. Morales (2007) studied the relationship between CPI and saving interest rate of state banks and stock price indices in four Eastern European markets including: Hungary, Czech Republic, Slovakia, Poland and stock price indices in three other markets: the US, UK, Germany - representing the international financial environment. The study used the Johansen method to see the integrated relationship between the variables. Granger causality test and VECM estimation were also used to find the relationship between the variables.
The results show that there is consistency in the short-run and long-run relationship between stock prices and CPI across countries. According to the VECM method, there is a short-run relationship between exchange rates and stock prices in Slovakia, and the German stock price index. According to the Granger test, there is a unidirectional impact from saving interest rate of state banks on the stock price index of the Czech Republic, Poland, Hungary. In addition, the impact of the Hungarian exchange rate, the Polish exchange rate and the Slovakian exchange rate on the UK stock price index is also found.
