Abstract
AbstractThis study has analysed the role of the domestic economic environment and regional markets (Thailand, Japan, Hong Kong and China) in explaining the dynamics of Vietnamese stock market. In so doing, we employed a time‐varying structural vector autoregression framework which accounts for time variations (in coefficients as well as in the variance–covariance matrix of innovations) on the data from July 2000 to December 2016. Our key findings suggested that the easing of monetary and credit conditions, stable and stronger currency and economic growth have played a significant and positive role in the development of the stock market in Vietnam. Inflation shocks did have a negative impact which implied that in policy setting the price stability is very important for the financial stability in Vietnam. The Vietnamese stock market is also heavily influenced by the regional markets, as there is strong evidence of co‐movement. However, it was also witnessed that despite having a similar direction of impact and co‐movement, different markets have an influence of different degrees and intensity on the Vietnamese stock market. Lastly, we also witnessed that as compared to the Global Financial Crisis, the recent periods showed comparatively lesser responsiveness. This could be associated with the intensive reaction during the period of financial turmoil as well as with an increase in the stability of the Vietnamese stock market as it matures.
Highlights
The significance of the stock market is manifested in its core function of acting as an intermediary, which redistributes the resources from savers, for instance, households or intuitional investors to firms, where the former is intended to invest profitably while the latter requires financial resources for further development (Pilinkus, 2010)
The under-analysis series of data on financial markets are prone to exhibit a structural change from their usual trend which could be due to a number of reasons, for instance, due to business and financial cycles
We analysed the influence of domestic economic environment and regional markets on the Vietnamese stock markets
Summary
The significance of the stock market is manifested in its core function of acting as an intermediary, which redistributes the resources from savers, for instance, households or intuitional investors to firms, where the former is intended to invest profitably while the latter requires financial resources for further development (Pilinkus, 2010). The importance of the financial sector for the real economy has been recognized well over a century ago (See seminal work by Bagehot, 1873). Perhaps, it was this context and repercussions of the GFC which led Borio to argue that ‘financial and macroeconomic stabilities are two sides of the same coin’ (2011, p.26). Due to the prima facie macro-financial inter-linkages, one shall be beware of the factors which may influence the stock market, when the global financial system in general, and developing economies in particular, have become more integrated and complicated (Morana and Beltratti 2008, Batten et al 2015)
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