Sectoral volatility spillovers and their determinants in Vietnam

Abstract

Using the vector autoregression (VAR) connectedness approach, this paper investigates dynamic volatility spillovers across 14 sectors in Vietnam’s stock market over the period 2012–2021. The study also explores the differences in sectoral spillovers before and after the outbreak of Covid-19 pandemic. Additionally, the paper also investigates the effects of the current pandemic and macroeconomic fundamentals on intersectoral connectedness in Vietnam. Our findings show that volatility transmission across sectors fluctuates significantly over the research period and spikes during the Covid-19 pandemic. The total spillover index is approximately 64.23 per cent, indicating that volatility spillovers across the Vietnamese sectors are substantial. The risks from the stock market appear to spread quickly and easily across sectors in Vietnam. Among these 14 sectors, food, fisheries, and oil and gas act as net senders of risks while real estate and pharmacy are the greatest receivers of risk. The findings also confirm that the commerce, transportation, manufacturing, and service sectors are more sensitive to the Covid-19 pandemic crisis than other sectors in Vietnam. Furthermore, the empirical results show that an increase in daily Covid-19 infections increases volatility spillover across sectors. Policy implications have emerged based on these findings from this paper for the Vietnamese government and other emerging countries.Supplementary InformationThe online version contains supplementary material available at 10.1007/s10644-022-09446-9.