The impact of international factors on vietnam stock market

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

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

TABLE OF CONTENTS

LIST OF FIGURES AND TABLES iv

ABSTRACT 1

CHAPTER 1: INTRODUCTION 2

1.1 Research issues 2

1.2 Research background 3

1.3 Research objective 11

1.4 Research question 11

1.5 Research scope 11

1.6 Research method and data 12

CHAPTER 2: LITERATURE REVIEW 13

2.1 Stock market 13

2.2 Factors affecting stock market 17

2.2.1 International factors 17

2.2.2 Domestic factors 24

CHAPTER 3: METHODOLOGY 30

3.1 Data Source 30

3.2 Econometric model 30

3.3 Expected result 31

CHAPTER 4: FINDING 32

4.1 Descriptive Statistics and Correlation Matrix 32

4.2 Stationary test 32

4.3 Cointegration test 33

4.4 Optimal Lag 34

4.5 Estimate the long-term coefficients of the model 36

4.6 Estimate the short-run coefficients of the model 37

4.7 Model Diagnostic Tests 39

CHAPTER 5: DISCUSSION 45

CHAPTER 6: RECOMMENDATION 50

6.1 Recommendation 50

6.2 Some limitations and future research directions 53

CHAPTER 7: CONCLUSION 55

REFERENCES 58

LIST OF FIGURES AND TABLES

Figure 1 World crude oil price developments from January 2008 to December 2023

21

Figure 2 World gold price developments in the period of January 2008 - December 2023 23

Figure 3 Deposit Interest Rate in Vietnam 27

Figure 4 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 38

Figure 6 Standard Normality 41

Figure 7 CUSUM test 43

Figure 8 MOSUM test 43

Table 1 Descriptive Statistics 32

Table 2 Correlation Matrix 32

Table 3 Stationary of the variables 33

Table 4 Stationary of the variables at first differences 33

Table 5 Cointegration test 34

Table 6 Top 5 models 35

Table 7 ARDL model results 35

Table 8 Long-term coefficients 36

Table 9 Short-run coefficients 37

Table 10 Autocorrelation test 39

Table 11 Variance Heterogeneity Test 40

Table 12 Estimation results after addressing the issue of heteroscedasticity 40

Table 13 Standard Normality test 42

Table 14 Model Specification test 42

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

CHAPTER 1: INTRODUCTION 1.1.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

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"

1.2.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)

- 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

1.2.1 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

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

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 Finally, the author finds a causal relationship from stock prices to stock prices in the case of the UK to Poland, Hungary to the UK and the US to Poland Richards and Simpson (2009) investigated the relationship between gold price and stock prices in Australia The author uses daily data series from January 2, 2003 to June 30, 2006 for two main variables in the model, which are the AUD/USD exchange rate and the All-ordinaries stock price index of the Australian Securities Exchange The author's research method is to use the OLS regression method to estimate the relationship between the two variables based on the original data series

and first differences Then, the author uses the ADF test to check the stationarity

In addition, the author uses the ARCH LM test to check the heteroskedasticity phenomenon Finally, the VAR model and the Granger causality test are used to estimate the relationship between the two variables The result is that there is a positive cointegration relationship between the two variables The Granger causality confirms the existence of an impact from stock prices on gold price Agrawal (2010) examined the relationship between stock returns and US yield movements in India stock market The study used daily data series from October

11, 2007 to March 09, 2009 First, the author used the Jarque-Bera (JB) test to check the probability distribution of each variable Then, the author used the ADF test to check the stationarity of the data series Finally, the author used the Bivariate Granger test to determine the relationship between the two variables The criteria for examining lags include final prediction error (F&E), Akaike information criterion (AIC), Hannan-Quin information criterion (HQ) and Schwarz information criterion (SC) The results showed that the relationship between Nifty index returns and US yield is inverse According to the Granger causality test, there is only a unidirectional impact from Nifty index returns and exchange rate

Kisaka (2012) studied the relationship between oil prices and exchange rates in Kenya, thereby establishing a causal relationship between price pass-through into the stock market and oil price in this country The study used monthly data series from November 1993 to May 1999 The author used ADF unit root test, cointegration test according to Engle and Granger (1987) to determine the long-run relationship between the variables Finally, Granger causality test was used based

on VECM model The results showed that the author found the impact of oil price

on stock prices in Kenya According to the author, exchange rate shocks can cause panic among investors and this affects stock prices

Tavakoli (2013) analyzed the relationship between exchange rate and stock price in two Asian countries, South Korea and Iran The author used monthly data series from July 2002 to March 2002 The research method was to use PP unit root test and apply MGARCH model to estimate the relationship between these two variables The results showed that no bidirectional relationship was found and only

a unidirectional relationship from stock returns to exchange rate in South Korea In addition, no relationship was found in Iran

Khan (2013) studied the long-run relationship between macroeconomic variables and Bangladesh stock market The macroeconomic variables here include deposit interest rate, exchange rate, consumer price index, oil price, money supply and All-Share Price Index The study uses monthly data series from January 1992 to June

2011 The author uses PP unit root test, AIC criterion and Johansen cointegration test Finally, the author estimates the short-run and long-run relationship using VECM model The results show that there is a long-run relationship between exchange rate and Dhaka stock price index

1.2.2 Domestic studies

Phan Thi Bich Nguyet and Pham Duong Phuong Thao (2013) analyzed the impact

of macroeconomic factors on the Vietnamese stock market The macroeconomic factors selected to examine the correlation with the stock market are money supply, inflation, real economic activity, interest rate, exchange rate and oil price The data used are monthly in the period from July 2000 to September 2011 The study applies

the cointegration test using the Engle Granger residual unit root test method to determine whether the selected macroeconomic variables are correlated with the stock market in Vietnam In addition, to avoid spurious regression, the unit root test

is also used to examine the stationarity of the variables After testing, the study uses multiple regression

estimating equations to reflect the correlation between variables and also performs post-testing to improve the true identification level of the regression equation such

as the Wald test and the Durbin-Watson test The results show that money supply, inflation, industrial output, and oil prices are positively correlated with the stock market, while interest rates and exchange rates are negatively correlated with this market

Nguyen Thi Lien Hoa and Luong Thi Thuy Huong (2014) studied the dynamic relationship between exchange rates and stock market volatility for ASEAN emerging markets in the period 2005-2013, including Vietnam The authors used the conditional variance model of exponential autoregressive error variance (EGARCH model) with Markov switching The results showed that the estimated coefficient of exchange rate volatility was negative and statistically significant for all markets, which led to the conclusion that fluctuations in the foreign exchange market would reduce returns on the stock market

Truong Dong Loc (2014) studied the factors affecting price changes of stocks listed

on HOSE The data used include price series, earnings per share (EPS) of 20 stocks listed on HOSE, lending interest rates, USD/VND exchange rates, gold prices and consumer price index over time with quarterly frequency in the period from

December 31, 2006 to December 31, 2012 The results of regression analysis show that EPS and USD/VND exchange rates are positively correlated with the profitability of stocks On the contrary, fluctuations in gold prices and inflation are negatively correlated with the profitability of stocks listed on HOSE

Le Hoang Phong and Dang Thi Bach Van (2015) used the ARDL model to find out the impact of macroeconomic factors on Vietnam's stock index in the period from January 2001 to December 2013 The study selected 6 common factors in world studies to specifically consider the case of Vietnam including: inflation; money supply; exchange rate; One-year term interest rates such as government bond interest rates, lending interest rates The study uses the quantitative analysis method according to the autoregressive distributed lag (ARDL) model proposed by Pesaran, Shin & Smith (1996) According to these authors, the procedure for running the ARDL quantitative analysis model consists of four steps: testing the envelope to determine cointegration between variables, determining the lags of variables in the model using the SBC or AIC criteria, running the ARDL model with the lags that have been determined to test the long-term relationship between variables and calculating the short-term impact of variables by a numerical correction model based on the ARDL approach to cointegration The research results show that, in both the short and long term, money supply has a positive impact on the stock price index, factors such as exchange rate, inflation, government bond interest rates and lending interest rates have a negative impact on the Vietnamese stock price index Conclusion: There is no consensus on the relationship between exchange rates and stock markets in the world markets as well as in Vietnam In particular, studies in Vietnam are still limited and incomplete Therefore, after consideration, the author

decided to choose the topic "The impact of international factors on Vietnam stock market"

1.3.Research objective

The general objective of this study is investigating the model of components influencing on the Vietnam stock price From the general objective of the research,

it has three objectives to achieved it, which are:

- Building a theoretical model of factors affecting on Vietnam stock price based on attraction model in international stock market and Vietnam economy

- Examining potential internal factors (CPI, saving interest rate of SBV) and external factors (USD/VND exchange rate, oil price, gold price, US yield)

of Vietnam economic affecting on Vietnamese stock price

- Giving some policy implications for the development of the Vietnamese stock market

1.4.Research question

To gain research objectives, the study needs to follow research questions below:

- Based on attraction model in international stock market and Vietnam economy, which are potential factors affecting stock market?

- How are the impact of internal factors and external factors on Vietnam stock price?

- What are solutions help to boost the Vietnam stock market?

1.5.Research scope

Regarding the research object, the author studies relationships between internal factors (CPI, saving interest rate of SBV) and external factors (USD/VND exchange rate, oil price, gold price, US yield) and the stock index (VN-Index)

Regarding the scope of the research, the author uses monthly time series data from January 2008 to December 2023, including 192 observations to fully reflect the cycles of the economy as well as the stock market This period is the period immediately after and after the global financial crisis and with updated data

1.6.Research method and data

The topic combines quantitative analysis and comparison, statistics to find relationships internal factors (CPI, saving interest rate of SBV) and external factors (USD/VND exchange rate, oil price, gold price, US yield) and VN-Index stock price index In which, the quantitative method uses the ARDL (Autogressive Distributed Lag) autoregressive model to test this relationship and the comparison, statistics method to analyze data between variables The data will be processed by the author on R software All data is synthesized through official sources of the State Bank of Vietnam (www.sbv.gov.vn), General Statistics Office (www.gso.gov.vn), Stock Exchange and other secondary information sources

CHAPTER 2: LITERATURE REVIEW 2.1 Stock market

2.1.1 Definition

The stock market is an important part of the capital market, its activities aim to mobilize small savings in society to concentrate into large long-term capital sources for businesses, economic organizations and the state to develop production, economic growth or for investment projects The stock market is where trading activities of all types of securities take place This trading is conducted in the primary market when buyers buy securities for the first time from the issuers and

in the secondary market when there is buying and selling of securities that have been issued in the primary market Therefore, the stock market is where securities are issued and exchanged (Bach Duc Hien, 2008: p.9)

2.1.2 Classification of stock market

Based on the circulation of capital sources, the stock market is divided into 2 types: Primary market: is the market for buying and selling newly issued securities In this market, capital from investors will be transferred to the issuer through investors buying newly issued securities

Secondary market: is the market for trading securities that have been issued on the primary market The secondary market ensures liquidity for issued securities Based on the method of market operation, the stock market is divided into 2 types:

Concentrated market (stock exchange): is the market where transactions are concentrated at one point and orders are transferred to the exchange and participate

in the order matching process to form the transaction price

Decentralized market (OTC): is the market where transactions are conducted through a network of securities companies distributed across the country and connected by electronic networks Prices in this market are formed by negotiation Based on the goods on the market, the stock market can be divided into 3 types: Stock market: is the market for trading and buying and selling stocks including common stocks and preferred stocks

Bond market: is the market for trading and buying and selling issued bonds, these bonds include corporate bonds, municipal bonds and government bonds

Derivatives market: is the market for issuing and buying and selling issued derivatives This is a high-end market specializing in trading high-end financial instruments and usually only appears in strongly developed stock markets

2.1.3 The role of the stock market

After 23 years of establishment and operation, the Vietnamese stock market has developed strongly, becoming an effective investment channel as well as a medium and long-term capital mobilization channel to supplement resources besides bank credit for the economy

Firstly, the stock market is an essential part of the capital market Its main activity

is to mobilize small savings in society into large capital sources for enterprises, economic organizations as well as the Government to develop the economy or for

investment projects Calling for capital on the stock market increases the equity capital of enterprises, helping them reduce high-cost loans and the control of commercial banks

Secondly, the stock market helps to separate ownership and management of enterprises clearly, creating conditions for the equitization of state-owned enterprises (SOEs) In the early period, one of the premises for the formation of the stock market in Vietnam was the equitization of SOEs The equitization of large-scale companies and state-owned enterprises through public auctions at the former Stock Exchange, now the Stock Exchange, has provided the stock market with a large amount of high-quality goods; contributed to expanding the market scale, attracting domestic and foreign investors to participate; created stable development for the market (due to the increased quality of listed stocks), limited speculation, and dominated stock prices in the market (due to the large number of large-scale enterprises)

Thirdly, the opening of the stock market increases liquidity and competition in the international market This allows companies to mobilize cheaper capital, increase investment from external savings, while enhancing international competitiveness and expanding business opportunities for domestic companies Korea, Singapore, Thailand, and Malaysia are typical examples of taking advantage of opportunities brought by the stock market

Fourth, the stock market creates opportunities for the Government to mobilize financial resources without inflationary pressure, and at the same time creates tools for implementing the Government's monetary and financial policies The reason

monetary policy has a strong impact on stocks is because listed companies are heavily dependent on bank loans The average debt ratio is up to over 50% For businesses in the real estate sector, the debt ratio is much larger, up to 70% - 80% Therefore, when credit policy changes, it immediately has a strong impact on the business and profits of these businesses If the policy is loosened, it means that businesses can borrow capital, can carry out projects, and expand production scale From there, there will be revenue, profit, and market share On the contrary, if the policy is tightened, businesses will have difficulty doing business and developing Fifth, the stock market also creates conditions for the Government to restructure the economy For public investment, the stock market has become an important capital mobilization channel for the Government In the period of 2010 - 2015, the Government mobilized nearly 715,000 billion VND through government bond auctions on the stock market, an increase of 18 times compared to the period of

2005 - 2010 For private sector investment, the development of the stock market, especially the transparency of the stock market, has been attracting issuing organizations (capital demand side) and investors (capital supply side) Along with the openness of the legal system on enterprises and investment, the stock market,

as a capital circulation channel for the private sector, will continue to develop strongly in the coming time The stock market also actively supports the restructuring process of the banking system Thanks to the development of the stock market, commercial banks (CBs) have mobilized large amounts of capital through issuing shares to meet the requirements of increasing charter capital according to the regulations of the State Bank in the process of restructuring the system of commercial banks

2.2 Factors affecting stock market

of domestic currency units, i.e the foreign currency acts as the quoted currency, and the domestic currency acts as the valuation currency In other words, the exchange rate is the number of domestic currency units in a unit of foreign currency (Nguyen Van Tien, 2008: p 297)

Classification of exchange rates

Based on the subject of exchange rate determination, there are two types of exchange rates:

Official exchange rate: Is the exchange rate determined by the Central Bank of that country On the basis of this exchange rate, commercial banks and credit institutions will set the exchange rate for buying and selling foreign currencies for immediate delivery, with a term, and for swaps

Market exchange rate: Is the exchange rate formed on the basis of supply and demand in the foreign exchange market

Based on the payment term, there are two types of exchange rates:

Spot exchange rate (SPOT): Is the exchange rate quoted by the credit institution at the time of transaction or agreed upon by the two parties but must be within the schedule prescribed by the State Bank Payment between the parties must be made within the next two working days, after the date of commitment to buy or sell Forward exchange rate (FORWARDS): Is the exchange rate calculated and agreed upon by credit institutions themselves, but must be within the prescribed range of the current forward exchange rate of the State Bank at the time of signing the contract

Based on the value of the exchange rate, there are 2 types of exchange rates:

Nominal exchange rate: Is the exchange rate of a currency expressed at the current price, without taking into account any effects of inflation

Real exchange rate: Is the exchange rate that takes into account the impact of inflation and purchasing power in a currency pair, reflecting the relative prices of goods that can be sold abroad and domestically consumed This exchange rate represents the international competitiveness of that country

Based on the method of foreign exchange transfer, there are 2 types of exchange rates:

Telegraphic exchange rate: Is the exchange rate usually listed at the bank This is the foreign exchange transfer rate by electricity The telegraphic exchange rate is the base rate for determining other types of exchange rates

Exchange rate: That is, the exchange rate for foreign exchange by mail The wire exchange rate is usually higher than the exchange rate

Depending on the time of buying/selling foreign exchange, there are 2 types

of exchange rates:

Buying rate: Is the exchange rate of the bank buying foreign exchange Selling rate:

Is the exchange rate of the bank selling foreign exchange

The buying rate is always lower than the selling rate and the difference is the bank's foreign exchange trading profit

In addition, there are 2 types of exchange rates that are often mentioned: Bilateral Exchange Rate: Is the price of a currency compared to another currency without mentioning inflation between the two countries If NEER > 1, the currency

is considered to have depreciated (lost value) against all other currencies, if NEER

< 1, the currency is considered to have appreciated (gained value) against all other currencies

Effective exchange rate or nominal multilateral exchange rate or nominal effective exchange rate (NEER–Nominal Effective Exchange rate): In fact, NEER is an index, not an exchange rate, it is the average index of one currency compared to the other

2.2.2.2 Oil price

In addition to the exchange rate, the world crude oil price is also chosen by the author as an independent variable in this study The world oil price is an important macroeconomic factor and has been included as an independent variable by many

researchers in the world when analyzing the impact of macroeconomic factors on the stock market, such as the study of Dadgar and Nazari (2012) when analyzing the relationship between stock prices and exchange rates in Iran or Khan (2013) when analyzing the relationship between macroeconomic variables and the Bangladesh stock market

Oil is an important energy commodity for the world's economic development Compared to many other countries in the world, Vietnam used to be a country that had to import 100% of its gasoline to serve the production and economic development process During the period from 2007 to present, oil prices have fluctuated quite a bit in 2008, with a peak of 147.27 USD/barrel in July 2008, then dropped to 40 USD/barrel in the same year This fluctuation is due to the influence

of many factors in the world such as economic growth forecasts, political instability, speculative nature which can affect production output

Figure 1 World crude oil price developments from January 2008 to

December 2023 (USD/barrel)

Source: Bloomberg

In recent years, the Vietnamese Government, with the desire to reduce foreign currency pressure when importing petroleum as well as to take advantage of the country's resources, has invested in many petrochemical projects such as the Nghi Son Thanh Hoa oil refinery project, Dung Quat factory to meet the increasing energy demand of the economy However, these domestic oil refinery projects only meet about 20% of domestic demand and the amount of petroleum to serve domestic development needs must be imported Therefore, world oil prices have an important impact on the Vietnamese economy In this study, crude oil prices are considered an independent macro variable, representing both the price of essential raw materials as well as the growth of the world economy

2.2.2.3 Gold price

In addition to the exchange rate and world oil price, the world gold price is also chosen by the author as an independent variable in this study When studying the impact of macroeconomic factors on the stock market, researchers often choose independent variables such as the consumer price index CPI, inflation or money supply The world gold price is also an important macroeconomic variable but has not been studied much in research articles, so this motivates the author to choose the world gold price as an independent variable in the study There have been a number of studies that have used the world gold price as an independent variable such as the study by Truong Dong Loc (2014) or the study by Nguyen Thu Thuy (2018), however, these studies have not yet reached a unified conclusion

In Vietnam, the stock market is a channel that the state has applied management measures while the gold market is still loose, so the flow of money invested in gold

is inevitable However, this investment channel in our country is not a large channel because people have the habit of considering gold as a means of storing value When the gold price increases sharply, it has a strong impact on the economy, specifically, the deposit of the population decreases and the loan supply decreases, thereby affecting the stock market In the short term, gold can be a safe haven for investors and when stocks decrease, investors often have the habit of holding gold

Figure 2 World gold price developments in the period of January 2008 -

is negatively affected by US government bond yields In addition to foreign studies, there are also many domestic studies on the impact of domestic and international macroeconomic indicators on stock indexes:

Nguyen & colleagues (2020) used the Autoregressive Distributed Lag (ARDL) model to prove that in the long run, exchange rates and gold prices show opposite

Nguyen & colleagues (2020) clarified the positive impact of oil prices on the Vietnam stock market index In addition, the study also found that changes in the USD/VND exchange rate significantly affect the return and volatility of the HNX index Studies by Nguyen (2019), Nguyen & Vo (2019), Le and Dang (2015); Than and Vo (2015) applied diverse and effective research models, leading to many different conclusions

An overview of domestic and international research shows that there is no precise conclusion on the correlation between macroeconomic variables from an international perspective to a specific stock index, especially Vietnam In addition, research articles still have many conflicting conclusions, possibly because these correlations will change depending on different markets and periods Therefore, this research paper is conducted to fill the above research gaps, by explaining the fluctuations of the Vietnamese stock market from international factors, based on the systematization of theories on the stock market, inheriting previous research methods, and the current situation of the Vietnamese stock market in the period 2008-2021

2.2.2 Domestic factors

2.2.2.1 CPI

Consumer Price Index (CPI) is an index of the average price level of a person's basket of goods or services In other words, CPI is a relative indicator (in %) that reflects the trend and level of general price fluctuations over time of goods and services consumed by people every day CPI is used to measure prices in the fields

of food and beverages, housing, clothing, transportation, medical services, education and communication, goods, entertainment and other services Usually,

countries in different periods will determine the basket of goods and the proportion

of goods used to calculate the CPI index for each period The consumer price index reflects the price level of the basket of goods in a certain period compared to the base period When comparing price indexes at two different times, a country has an indicator called the inflation rate, which is an indictor of the general increase in prices of goods on the market in a period When CPI increases, consumer prices increase rapidly, causing purchasing power to decrease This negatively affects people's spending and living standards Thus, CPI is a basic index that helps monitor consumer prices and changes in the cost of living, thereby making economic policies

The CPI consumer price index can affect the trend of the stock market When CPI increases, the stock market can decrease This is because inflation can reduce the profits of businesses Inflation can increase the production costs of businesses, leading to reduced profits In addition, inflation can also reduce the purchasing power of consumers, causing businesses to sell fewer goods and services In other words, an increase in CPI is often accompanied by an increase in the prices of goods and services, reducing the purchasing power of consumers This can reduce the sales of companies, especially consumer companies, and affect their stock prices When CPI rises, there is likely to be increased pressure on the central bank to raise interest rates to control inflation Higher interest rates can reduce the attractiveness

of investing in stocks, especially in companies with debt However, the relationship between CPI and the stock market is not entirely linear There are cases where CPI rises but the stock market still rises This can happen if other factors, such as economic growth, remain positive

2.2.2.2 Saving interest rate of State Bank of Vietnam

Interest rate is the percentage of the principal (deposited or lent money) that a financial institution (or borrower) is responsible for returning to the depositor (or lender) within a specified period of time (usually calculated by month or year) It can also be understood as the price of using other people's money The depositor or borrower can be an individual, a business, an organization, a bank and vice versa Specifically, deposit interest rate is the deposit interest rate offered by banks and financial institutions to mobilize deposits from organizations and individuals In other words, deposit interest rate is the interest rate that commercial banks and financial institutions pay on deposit accounts

In fact, deposit interest rates and the stock market are two important factors affecting the economy Interest rates have a certain impact on the prices of products and services in the economy Market interest rates are governed by the operating interest rate (rediscount interest rate and refinance interest rate) regulated by the State Bank In other words, through the operating interest rate, the State Bank (SBV) affects the short-term interest rate level, thereby affecting medium- and long-term interest rates, in order to achieve the goals of monetary policy Accordingly, when interest rates increase, the borrowing costs of businesses increase, thereby increasing production and business costs This can lead to an increase in the prices of products and services, because businesses need to pay a higher cost to maintain business operations The stock market is where stocks and bonds are traded, and the prices of these assets are also affected by interest rates In other words, a decrease in deposit interest rates will promote cash flow to the stock market, while an increase in interest rates will cause the stock market to decrease

Stock prices are usually inversely related to interest rates This means that when interest rates increase, stock prices will usually decrease, and vice versa

For example, the table below lists the average deposit interest rates in Vietnam from

2014 to the end of 2023 In addition, the fluctuations of the Vietnamese stock index, specifically the two largest exchanges, VN-Index and HOSE, are presented in the table from 2007 to 2022 The inverse relationship between bank deposit interest rates and stock prices can be clearly seen through the two charts above Accordingly, 2021 and 2022 witnessed the sharpest decline in bank deposit interest rates in Vietnam This trend reversed in stock prices in 2021 and 2022 At this time, the stock prices of a series of companies listed on the Vietnamese stock exchange all tended to increase during this period

Figure 3 Deposit Interest Rate in Vietnam (%)

Source: World bank

Figure 4 Growth rate of VN-Index and HOSE capitalization from 2007 to

2022 (trillion VND)

Source: Bloomberg.vn

When the State Bank of Vietnam cuts deposit interest rates, the flow of savings

deposits of individuals and organizations will tend to flow into other investment

channels (specifically the stock and bond markets) Low interest rates also

encourage investors to borrow money to invest in financial assets instead of saving

More money from individual investors flowing into the stock market helps increase

liquidity, the market becomes more vibrant, the company's stock price will also

increase based on the law of supply and demand and businesses will benefit from

this cheaper source of capital Therefore, lower interest rates are a catalyst for strong

stock market growth

CHAPTER 3: METHODOLOGY

3.1 Data Source

The study uses monthly time series data from January 2008 to December 2023 for variables including Vietnam stock price index (VN-Index), USD/VND exchange rate, oil price, CPI, saving rate of State Bank of Vietnam, US yield and world gold price with 192 observations The variables are taken natural logarithm before being used for analysis

The data was collected by the author from Bloomberg, the website of the Stock Exchange, the General Statistics Office and other secondary sources of information

3.2 Econometric model

According to Hosseini (2011) studied the relationship between stock market and macroeconomic variables such as crude oil price, industrial production, money supply and inflation rate in India and China The research results indicate the existence of a relationship between stock market index and these macroeconomic variables in the short and long term

According to Dadgar and Nazari (2011) studied the relationship between stock prices, inflation rate, oil price and exchange rate, there is a long-term equilibrium relationship Specifically, oil price and exchange rate have opposite effects and inflation has the same effect on stock prices

Based on some studies such as the above studies, the topic proposes the ARDL model to examine the relationship between stock prices and exchange rates, oil prices, and gold prices as follows:

∆(LSP)t= α0+ ∑ αi∆(LSP)t−i+

a i=1

∑ βi∆(LER)t−i+

b i=1

∑ γi∆(LOP)t−i

c i=1

+ ∑ δi∆(LGP)t−i

d i=1

+ ∑ εi∆(LCPI)t−i

e i=1

+ ∑ ϵi∆(LSR)t−i+

f i=1

∑ θi∆(LUY)t−i+ ut

g i=1

H1: The relationship between the stock

price and USD/VND exchange rate is

OP Oil price

H2: The relationship between the stock

price and oil price is positive +

GP Gold price H3: The relationship between the stock

price and gold price is positive +

SR

Saving

interest rate

of SBV

H4: The relationship between the stock

price and Saving interest rate of SBV is

CPI Consumer

Price Index

H5: The relationship between the stock

price and CPI is positive +

UY US yield H6: The relationship between the stock

price and US yield is negative -

CHAPTER 4: FINDING 4.1 Descriptive Statistics and Correlation Matrix

Table 2 Correlation Matrix

Results estimated using R

From table 2, SP is positively correlated with ER and GP, and negatively correlated

with the remaining variables (…)

4.2 Stationary test

The author uses Dickey- Fuller test to determine the stationary of the time series for the variables

H0: The series is non-stationary

H1: The series is stationary

Table 3 Stationary of the variables

Results estimated using R

According to table 3, p-value of variabkes SP, USYield, and CPI is lower than 0.05

Thus, we accept the alternative hypothesis that the series does not have unit roots, i.e., the series is stationary

The variables ER, OP, GP, and SR are not stationary at level variance, so the author proceeded to take the first differences of these variables for further testing

Table 4 Stationary of the variables at first differences

Results estimated using R

Thus, according to the Dickey-Fuller test, we obtain the result that the data series

SP, USYield, and CPI are stationary at level, i.e., I(0) Meanwhile, the data series

ER, OP, GP, and SR are non-stationary and only become stationary at first differences, i.e., I(1) The variables in the research model differ in terms of stationarity, which is a necessary condition to meet the requirements for using the ARDL model (Pesaran et al., 2001)

4.3 Cointegration test

The data series in the model are a combination of the original I(0) series and the series after taking the first differences, I(1) Therefore, when conducting the