0123 the impact of COVID 19 on stock index volatility empirical evidence from vietnam on VNIndex 2021

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY NGUYỄN TRÚC QUỲNH THE IMPACT OF COVID-19 ON STOCK INDEX VOLATILITY: EMPIRICAL EVIDENCE FROM VIETNAM ON VNINDEX BACHELOR THESIS FACULTY: FINANCE – BANKING CODE: 7340201 GUIDING TEACHER: DR NGUYỄN MINH NHẬT HCMC, NOVEMBER 2021 NGUYỄN TRÚC QUỲNH THE IMPACT OF COVID-19 ON STOCK INDEX VOLATILITY: EMPIRICAL EVIDENCE FROM VIETNAM ON VNINDEX BACHELOR THESIS FACULTY: FINANCE – BANKING CODE: 7340201 GUIDING TEACHER: DR NGUYỄN MINH NHẬT HCMC, NOVEMBER 2021 iii ABSTRACT COVID-19 emerged to be a health crisis but its serious escalation forces human to face with challenges in all aspects Rapid increase in quantity of infected cases, confirmed death as well as strict quarantine and remote working has slow downed global financial markets which consists of stock markets Since Vietnamese stock market definitely could not be an exception in this crisis, a deep insight in the influence of the pandemic on stock market volatility becomes essential The present study tries to explore the impact of the Coronavirus pandemic on stock index volatility in Vietnamese stock market through VNIndex volatility To estimate the effect of the existence of COVID-19 on VNIndex, GARCH family models which are known for their ability to model volatility are emloyed Using these models, the asymmetric nature of stock returns and the volatility of stock returns in the period of the pandemic are examined Most of the previous studies has divided the sample period into two sub-periods, one period before the emergence of the epidemic and one after that appearance In this paper, the same approach is going to be applied In order to capture the volatility, the author utilizes at the same time the GARCH(1,1) and EGARCH(1,1) models for the pre-COVID-19 era and the post- COVID-19 era as well The results of this study indicate that the pandemic has had a significant and positive impact on stock market volatility, which means it has caused higher volatility In addition, the result also confirm the existence of leverage effect DECLARATION OF AUTHENTICITY This thesis with the topic “The impact of COVID-19 on stock index volatility: Empirical evidence from Vietnam on VNIndex” is the author's research work and the research results are honest There are no previously published contents or contents made by other authors except for the cited references which are from clear sources presented in the thesis The author would like to be responsible for my commitment Ho Chi Minh City, November 2021 Student in charge Nguyễn Trúc Quỳnh ACKNOWLEDGEMENTS First and foremost, a complete study would not be done without any assistance I would like to express my gratitude for the patience, support, and academic advice of my supervisor, Dr Nguyễn Minh Nhật, without whom this thesis would surely not be possible Secondly, I would like to acknowledge both the Department of Finance and the University of Banking of Ho Chi Minh City, for providing me with knowledge in finance and banking throughout four years Finally, I would also like to thank my family for their encouragement in the process of doing my Bachelor thesis as well as in my four-year journey in University of Banking Ho Chi Minh City, November 2021 Student in charge Nguyễn Trúc Quỳnh TABLE OF CONTENTS CHAPTER INTRODUCTION 1.1 Necessity of the topic 1.2 Research objectives and questions 1.3 Research subjects and range 1.4 Research methodology 1.5 Research structure 1.6 Research contribution CHAPTER THEORICAL FRAMEWORK AND LITERATURE REVIEW 2.1 Vietnam stock market overview 2.2 General impact of COVID-19 on the economy 11 COVID-19 and Vietnam economy 14 2.3 Review of previous researches 16 2.4 Gaps of previous studies 20 CHAPTER DATA AND METHODOLOGY 22 3.1 Data 22 3.2 Methodology 22 3.3 Testing for ARCH effect 25 3.4 Research models 26 CHAPTER RESULTS AND DISCUSSION 29 4.1 Descriptive statistics 29 4.2 Unit root test 31 4.3 Test of ARCH effect on the data set 32 4.4 Empirical findings and results of estimation of GARCH model 33 4.5 Empirical findings and results of estimation of EGARCH model .35 4.6 Comparision with previous researches 37 CHAPTER CONCLUSION AND RECOMMENDATIONS .39 5.1 Conclusion 39 5.2 Recommendations 40 5.3 Limitation and further research 41 REFERENCES 43 APPENDIXES i-ix LIST OF ABBREVIATIONS WORDS MEANINGS ARCH Autoregressive Conditional Heteroskedasticity ARMA Autoregressive Moving Average BET Bucharest Exchange Trading index CAC Cotation Assistée en Continu (French stock index) DAX Deutscher Aktienindex (German stock index) DJIA Dow Jones Industrial Average EGARCH Exponential Generalized Autoregressive Conditional Heteroskedasticity EIU Economist Intelligence Unit FTSE Financial Times Stock Exchange GARCH Generalized Autoregressive Conditional Heteroskedasticity GCC Gulf Cooperation Council GDP Gross Domestic Product GJR-GARCH Glosten-Jagannathan-Runkle Generalized Autoregressive Conditional Heteroskedasticity HOSE Ho Chi Minh Stock Exchange HNX Ha Noi Stock Exchange IPO Initial Public Offering NIKKEI Japanese stock index OECD Organization for Economic Cooperation and Development SENSEX S&P Bombay Stock Exchange Sensitive Index UPCoM Unlisted Public Company Market VIX Cboe Volatility Index WHO World Health Organization LIST OF TABLES & FIGURES Figure 1.1 Total confirmed infected cases in the world Figure 1.2 Total confirmed deaths in the world Figure 1.3 Total confirmed cases in Vietnam Figure 1.4 Total deaths in Vietnam Figure 2.1 Real GDP growth of countries in 2020 12 Figure 2.2 The impact of coronavirus on stock markets since the start of the outbreak 13 Table 4.1 Descriptive statistics of VNIndex daily closing price from 02/10/2017 to 30/09/2021 29 Figure 4.2 VNIndex daily closing price graph 29 Figure 4.3 VNIndex logarithm return chart 30 Table 4.4 Descriptive statistics of VNIndex’s return in two sub-periods 31 Table 4.5 Unit root test – ADF test 32 Table 4.6 Heteroskedasticity Test: ARCH effect at Latency 32 Table 4.7 Heteroskedasticity Test: ARCH effect at Latency 32 Table 4.8 GARCH(1,1) model with dummy variable 33 Table 4.9 GARCH(1,1) model in two sub-periods 34 Table 4.10 EGARCH(1,1) model with dummy variable 35 Table 4.11 EGARCH(1,1) model in two sub-periods 36 ... addition, the result also confirm the existence of leverage effect DECLARATION OF AUTHENTICITY This thesis with the topic ? ?The impact of COVID- 19 on stock index volatility: Empirical evidence from. .. This research determines the existence of the impact of COVID- 19 on the volatility of the stock market If it is confirmed that there is an existence of COVID1 9 impact on volatility, this study... and volatility following the process of COVID- 19? Question 3: Is the stock index volatility in the Vietnamese market in the period of COVID- 19 consistent with empirical findings in other parts of