(Luận văn) return and volatility spillovers vietnamese and some asian markets

t to MINISTRY OF EDUCATION AND TRAINING ng hi UNIVERSITY OF ECONOMICS HOCHIMINH CITY ep -o0o - EÂ1 w n lo ad ju y th NGUYỄN VĨNH NGHIÊM yi pl ua al n RETURN AND VOLATILITY SPILLOVERS VIETNAMESE AND SOME ASIAN MARKETS n va ll fu m oi MAJOR: BUSINESS ADMINISTRATION nh MAJOR CODE: 60.34.05 at z z jm SUPERVISOR: ht vb MASTER THESIS Dr VÕ XUÂN VINH k om l.c gm an Lu n va ey t re th HO CHI MINH CITY, 2012 i Acknowledgement t to ng Foremost, I would like to express my sincere gratitude to my advisor Dr Võ hi Xuân Vinh for the continuous support of my thesis, for his patience, motivation, ep enthusiasm, and immense knowledge His guidance helped me in all the time of w research and writing of this thesis n lo ad I would like to thank professors at Faculty of Business Administration and y th ju Postgraduate Faculty, University of Economics Ho Chi Minh City for their yi teaching, their guidance and support during my MBA course pl ua al I wish to thank my family for the love, support and constant encouragement I n n va have got over the years ll fu oi m at nh z z ht vb k jm om l.c gm n a Lu n va y te re ii Abstract t to Purpose - This thesis investigates the interdependence between the Vietnamese ng hi stock market and other nine Asian markets in terms of return and volatility ep spillovers during three periods: pre-crisis, crisis and post-crisis w n lo Methodology - Long run and short run integration are examined through ad Johansen cointegration and Granger causality test respectively Vector y th autoregressive model is used to estimate the conditional return spillover among ju yi these indices Volatility spillover is studied through BEKK and AR-GARCH pl Model n ua al va Findings - We find evidence of the integration of Vietnamese market with n statically significant correlation, cointegration, return spillover and volatility fu ll spillover with other markets The crisis has strong impacts to market m oi interdependence with higher correlation, cointegration and spillovers In the nh at current period, there may be long run benefits from portfolio diversification to z Vietnamese stocks z ht vb jm Originality/Value - The thesis points out the return and volatility between k Vietnamese stock market and other nine Asian Markets and suggests potential om l.c gm benefits from diversification Key words - Return spillover, Volatility spillover, VAR, BEKK, VAR-GARCH, n a Lu Cointegration, Granger causality n va y te re iii Contents t to ng Acknowledgement i hi Abstract ii ep Contents iii List of Figures v w n List of Tables vi lo ad Chapter Introduction Background 1.2 Purpose and scope 1.3 Basic definition ju y th 1.1 yi Stock index 1.3.2 Return 1.3.3 Volatility 1.3.4 Return spillover 1.3.5 Volatility spillover 1.3.6 Time series 1.3.7 Cointegration 1.3.8 Granger causality pl 1.3.1 n ua al n va ll fu oi m at nh Research questions 1.5 Structure z 1.4 z vb Literature review Chapter Methodology 12 ht Chapter jm Data 12 3.2 The model and methods 12 k 3.1 gm Introduction 12 3.2.2 Unit root and stationary test 13 3.2.3 Johansen’s cointegration techniques 14 3.2.4 Granger causality analysis 16 3.2.5 VAR Model 18 3.2.6 Bivariate BEKK Model 18 3.2.7 GARCH Model 20 Chapter Data Description, Results and Analysis of Results 22 om y te re Opening and closing time of Indices 22 n 4.1.1 va Descriptive statistics and correlation matrix 22 n a Lu 4.1 l.c 3.2.1 iv 4.1.2 Descriptive statistics of Indices 23 4.1.3 Descriptive statistics of Indices’ return 24 4.1.4 Correlation matrix 25 t to 4.2 Long-run interdependence 26 ng hi ep 4.2.1 Unit root test 26 4.2.2 Johansen’s cointegration 27 4.3 Short-run interdependence 31 w 4.3.1 n lo 4.3.2 VAR Model for estimation of return spill over 34 Volatility spill over 40 ad 4.4 Granger causality analysis 31 BEKK model 40 4.4.2 VAR – GARCH model 43 Chapter Conclusions 49 ju y th 4.4.1 yi pl al Figure 51 n ua References 53 n va ll fu oi m at nh z z ht vb k jm om l.c gm n a Lu n va y te re v List of Figures t to Figure Index timings by UTC Time 22 ng Figure Index closing price 51 hi Figure Index return 52 ep w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z ht vb k jm om l.c gm n a Lu n va y te re vi List of Tables t to Table Indices and their origination ng Table Descriptive statistics of Indices in pre-crisis period 23 hi Table Descriptive statistics of Indices in crisis period 23 ep Table Descriptive statistics of Indices in post-crisis period 23 Table Descriptive statistics of Indices’ return in pre-crisis period 24 w n Table Descriptive statistics of Indices’ return in crisis period 24 lo Table Descriptive statistics of Indices’ return in post-crisis period 24 ad Table Correlation Matrix between Indices' returns in pre-crisis period 25 y th Table 9.Correlation Matrix between Indices' returns in crisis period 26 ju yi Table 10.Correlation Matrix between Indices’ returns in post-crisis period 26 pl Table 11 Unit root test result on Indices 27 ua al Table 12 Unit root test results on Indices' return 27 n Table 13 Johansen's cointegration test for pre-crisis period 30 n va Table 14 Johansen's cointegration test for crisis period 30 fu Table 15.Johansen's cointegration test for post-crisis period 31 ll Table 16 Granger causality test results for pre-crisis period 33 m oi Table 17 Granger causality test results for crisis period 33 at nh Table 18 Granger causality test results for post-crisis period 34 z Table 19 Bivariate VAR Model (VNIndex and other Indices) estimates of model on indices return in pre-crisis period 37 z ht vb Table 20 Bivariate VAR Model (VNIndex and other Indices) estimates of model on indices return in crisis period 38 jm k Table 21 Bivariate VAR Model (VNIndex and other Indices) estimates of model on indices return in post-crisis period 39 gm Table 22 Parameters estimates of BEKK model for pre-crisis period 42 l.c Table 23 Parameters estimates of BEKK model for crisis period 42 om Table 24 Parameters estimates of BEKK model for post-crisis period 43 n y te re Table 27 Volatility spillover estimates of AR(1) GARCH(1,1) model for post-crisis period 48 va Table 26 Volatility spillover estimates of AR(1) GARCH(1,1) model for crisis period 47 n a Lu Table 25 Volatility spillover estimates of AR(1) GARCH(1,1) model for precrisis period 46 Chapter t to 1.1 Introduction Background ng hi Currently, the globalization of domestic market becomes an evident trend The ep equity markets attract capital not only from domestic but also from international w investors who expect to reduce the risk via diversification This trend would n lo reduce the isolation of domestics markets and the markets can react quickly to ad international news and shocks y th ju The information transmission across market has been widely studied in two yi pl different faces First, the long term interdependence and causality among markets ua al are considered as strong signal of information transmission And secondly, the n volatility transmission across markets gets more studies these days because it va n becomes important as a good measure of the risk of internationally diversified fu ll portfolio which very helpful in deciding the asset diversification strategy oi m Vietnamese stock market was formed a decade ago and now attracts valuable nh at investment However, there have been relatively few studies on the linkages of z z Vietnamese equity market with international markets, especially the Asian ht vb markets k Purpose and scope jm 1.2 gm l.c This study attempts to investigate interactions in terms of price and volatility spillover amongst Vietnamese equity market and other nine Asian markets om (India, Hong Kong, Indonesia, Malaysia, Japan, Philippines, China, Singapore n a Lu and Taiwan) y spillovers te re bivariate BEKK and AR-GARCH model is used to evaluate the volatility n spillovers) and Granger causality test (for short term spillovers) Meanwhile, the va The return spillovers are examined with Johansen co-integration (for long term Both the return spillovers and volatility spillovers are considered through three periods: the pre-crisis period (from 03rd January 2005to 31st December 2007), t to the crisis period (from 01st January 2008 to 30th June 2010) and the post-crisis ng period (from 1st July 2010 to 31st August 2012) The evaluation based on these hi ep three periods would indicate the effect of financial crisis to the return and volatility spillovers between Vietnamese stock market and other nine Asian w markets n lo ad The markets are presented by their Indices as following: y th ju Table Indices and their origination yi pl Index name BSE Sensex Index Hang Seng Index Jakarta Composite Index FTSE Bursa Malaysia Nikkei 225 Index Philippines Stock Exchange PSEi index SSE Composite Index Straights Times Index TSEC weighted index Vietnam Index n ua al n va ll fu oi m at nh Index BSESN HIS JKSE KLSE Nikkei 225 PSEI SSE STI TWII VNIndex Country India Hong Kong Indonesia Malaysia Japan Philippines China Singapore Taiwan Vietnam z z vb ht The reason for selecting these markets is that they represent the developed and jm emerging economies of Asian stock markets and they have potential effect to k - om l.c benchmark indices gm Vietnamese stock market Moreover the chosen indices are widely accepted Hong Kong and Japan are regarded as one of the mature financial centers a Lu in Asia and play important role in the regional economy with high n n va transaction volume and high influences to other markets China is the fastest developing economy in the world and gains stronger border with China and the trade among Vietnam and China gets large y position today in financial market; furthermore Vietnam shares same te re - portion of the Vietnamese international trading, so we expect information transmission among China and Vietnam t to - Other markets (Indonesia, Malaysia, Philippines and Singapore) are in the ng hi same ASEAN (Association of Southeast Asian Nations) organization as ep Vietnam ASEAN is the ninth largest economy in the world and is growing with more and proven integration between its members w n Basic definition lo 1.3 ad y th Stock index ju 1.3.1 yi pl A stock index or stock market index is a method of measuring the value of a ua al section of the stock market It is computed from the prices of selected stocks n (sometimes a weighted average) It is a tool used by investors and financial va managers to describe the market, and to compare the return on specific n ll fu investments m Return oi 1.3.2 nh at Most financial studies involve returns, instead of prices, of assets Campbell et al z z (1996) give two main reasons for using returns First, for average investors, vb ht return of an asset is a complete and scale-free summary of the investment jm opportunity Second, return series are easier to handle than price series because k gm the former have more attractive statistical properties word ‘return’ in means of continuously compounded return n a Lu Continuously compounded return om l.c There are several definitions of an asset return, and in this thesis, we use the y te re continuously compounded return or log return: n va The natural logarithm of the simple gross return of an asset is called the 𝑟𝑡 = 𝑙𝑛 𝑃𝑡 = ln(𝑃𝑡 ) − ln(𝑃𝑡−1 ) 𝑃𝑡−1