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
INTRODUCTION
Research issues
The stock market plays a crucial role in a developed economy, serving as a key investment avenue for numerous investors Over the past two decades, the Vietnamese stock market has experienced significant growth and success, attracting researchers interested in its inherent risks and opportunities Market fluctuations are influenced by various factors, with macroeconomic variables such as GDP growth rate, consumer price index (CPI), interest rates, and exchange rates being of particular interest to both domestic and international scholars Notable studies, including those by Phan Thi Bich Nguyet and Pham Duong Phuong Thao (2013) and Le Hoang Phong (2015), have explored the effects of these macroeconomic factors on the Vietnamese stock market Despite these investigations, a consensus on the relationship between macroeconomic indicators and stock market performance remains elusive.
Vietnam's recent trade deficit has heightened the demand for foreign currency, while modest foreign exchange reserves exert pressure on state agencies to manage the USD/VND exchange rate Exchange rate fluctuations significantly impact various economic factors, including import and export activities, inflation, and overall economic growth An increase in the exchange rate benefits exporting enterprises but poses challenges for other sectors.
The exchange rate significantly influences the financial outcomes of importing enterprises with foreign currency cash flows A weakened domestic currency can motivate investors to purchase stocks; however, persistent depreciation may deter foreign investment due to increased exchange rate risks.
Recent studies, such as those by Phan Thi Bich Nguyet and Pham Duong Phuong Thao (2013) and Le Hoang Phong (2015), have explored the influence of macroeconomic variables on the Vietnamese stock market, but their findings have shown inconsistencies Consequently, the author has opted to focus on the topic: "The impact of international factors on the Vietnam stock market."
Research background
Numerous studies have explored the international factors influencing global stock markets, including Richards and Simpson's (2009) examination of the relationship between exchange rates and stock prices in Australia, and Agrawal's (2010) analysis of exchange rate movements and stock market volatility In Vietnam, research has also focused on the impact of exchange rates and other macroeconomic factors on the stock market, as demonstrated by Truong Dong Loc's (2014) investigation into the factors affecting stock price changes on the Ho Chi Minh City Stock Exchange (HOSE), along with the work of Le Hoang Phong and Dang Thi Bach Van (2015).
The study examines the influence of macroeconomic factors on Vietnam's stock index through the ARDL model Findings indicate that the correlation between certain international variables and the stock market lacks a uniform trend across different markets Furthermore, the empirical results for Vietnam reveal inconsistencies and ambiguity.
Abdalla and Murinde (1997) studied the interactions between exchange rates and stock price indices in four emerging markets: India, Korea, Pakistan, and the Philippines They aimed to explore the relationship between price pass-through in the stock and foreign exchange markets to suggest exchange rate policies for stock market development Utilizing monthly time series data from January 1985 to July 1994, the study focused on the monthly real exchange rate (REER) and stock price indices, sourcing data from Morgan Guaranty Trust, Bloomberg, and Datastream The authors employed Engle and Granger cointegration tests to analyze long-run relationships, finding no cointegration in Korea and Pakistan, but establishing it in India and the Philippines For the Korean and Pakistani markets, they applied the standard Granger test, while using the ECM-based Granger test for India and the Philippines The optimal lag R2 was selected after determining the model's optimal lag, and additional tests, including the Chow test for structural breaks, the White test for heteroscedasticity, and the Lagrange multiplier (LM) test for autocorrelation, were conducted.
The correlation coefficient analysis of income levels across four markets reveals a lack of consistency among them In the Philippines, a long-term relationship between exchange rates and stock price indices is absent; however, stock prices do influence exchange rates, as indicated by causality tests Conversely, in Pakistan, Korea, and India, both short-term and long-term relationships exist, with exchange rates impacting stock prices The authors emphasize that emerging markets should exercise caution when selecting exchange rate policies, as fluctuations can significantly affect import-export businesses and, consequently, stock prices.
Nath and Samanta (2003) investigated the relationship between the stock market and foreign exchange market in India, concluding that there is no direct correlation between stock market returns and foreign exchange market returns However, their analysis indicates a recent influence of foreign exchange returns on stock market returns Utilizing daily data from March 1993 to December 2002, the study focused on the S&P CNX NIFTY index and the exchange rate between the Indian Rupee and the US dollar, applying natural logarithms for analysis The authors employed Johansen's cointegration test, which revealed no long-run relationship between the variables Additionally, the Granger causality test indicated no causal relationship during the initial period studied, although it was found that stock prices impacted foreign exchange returns in the years 1993, 2001, and 2002.
6 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) investigated the interplay between the Consumer Price Index (CPI) and saving interest rates of state banks alongside stock price indices in four Eastern European countries—Hungary, Czech Republic, Slovakia, and Poland—while also examining stock indices in the US, UK, and Germany to represent the broader international financial landscape Utilizing the Johansen method, the study revealed an integrated relationship among these variables, supported by Granger causality tests and Vector Error Correction Model (VECM) estimations Findings indicated a consistent short-run and long-run relationship between stock prices and CPI across the examined nations Notably, the VECM method identified a short-term connection between exchange rates and stock prices in Slovakia and Germany The Granger test highlighted a unidirectional influence of state banks' saving interest rates on the stock price indices of the Czech Republic, Poland, and Hungary, while also revealing the impact of Hungarian, Polish, and Slovakian exchange rates on the UK stock index Ultimately, the study established a causal relationship where stock prices in the UK influenced those in Poland, and vice versa for Hungary and the US to Poland.
Richards and Simpson (2009) explored the connection between gold prices and stock prices in Australia, utilizing daily data from January 2, 2003, to June 30, 2006 Their analysis focused on two key variables: the AUD/USD exchange rate and the All-Ordinaries stock price index of the Australian Securities Exchange Employing the OLS regression method, the authors estimated the relationship between these variables based on the original data series.
7 and first differences Then, the author uses the ADF test to check the stationarity
The author employs the ARCH LM test to examine the heteroskedasticity phenomenon Additionally, a VAR model and Granger causality test are utilized to analyze the relationship between stock prices and gold prices The findings indicate a positive cointegration relationship between the two variables, with the Granger causality test confirming that stock prices significantly influence gold prices.
Agrawal (2010) examined the relationship between stock returns and US yield movements in India stock market The study used daily data series from October
From November 11, 2007, to March 09, 2009, the author conducted a series of tests to analyze the relationship between the Nifty index returns and US yield Initially, the Jarque-Bera (JB) test was employed to assess the probability distribution of each variable, followed by the ADF test to examine the stationarity of the data series The Bivariate Granger test was then utilized to explore the relationship between the two variables, with lag examination criteria including final prediction error (F&E), Akaike information criterion (AIC), Hannan-Quin information criterion (HQ), and Schwarz information criterion (SC) The findings indicated an inverse relationship between Nifty index returns and US yield, with the Granger causality test revealing a unidirectional impact from Nifty index returns to the exchange rate.
Kisaka (2012) investigated the connection between oil prices and exchange rates in Kenya, revealing a causal link between price pass-through into the stock market and oil prices The study analyzed monthly data from November 1993 to May 1999, employing the ADF unit root test and the Engle-Granger cointegration test to assess the long-term relationship between the variables Additionally, the Granger causality test was conducted using the VECM model, ultimately demonstrating the significant impact of oil prices on the stock market in Kenya.
8 on stock prices in Kenya According to the author, exchange rate shocks can cause panic among investors and this affects stock prices
In a study by Tavakoli (2013), the relationship between exchange rates and stock prices was examined in South Korea and Iran using monthly data from July 2002 to March 2002 Employing the PP unit root test and the MGARCH model, the research revealed a unidirectional relationship where stock returns influenced exchange rates in South Korea, while no significant relationship was identified in Iran.
Khan (2013) examined the long-term relationship between key macroeconomic variables and the Bangladesh stock market, focusing on factors such as deposit interest rates, exchange rates, the consumer price index, oil prices, money supply, and the All-Share Price Index The analysis utilized monthly data from January 1992 to June 2013, providing insights into how these economic indicators influence stock market performance in Bangladesh.
In 2011, the author employed the PP unit root test, AIC criterion, and Johansen cointegration test to analyze the relationship between the exchange rate and the Dhaka stock price index The findings indicate a significant long-run relationship, which was further examined through the VECM model to estimate both short-run and long-run dynamics.
In their 2013 study, Phan Thi Bich Nguyet and Pham Duong Phuong Thao investigated the influence of macroeconomic factors on the Vietnamese stock market, focusing on variables such as money supply, inflation, real economic activity, interest rates, exchange rates, and oil prices Utilizing monthly data from July 2000 to September 2011, the research aimed to uncover the correlations between these macroeconomic indicators and stock market performance.
The study employs the Engle-Granger residual unit root test to analyze the cointegration of selected macroeconomic variables with Vietnam's stock market To ensure accurate results and avoid spurious regression, a unit root test is conducted to assess the stationarity of the variables Following the tests, multiple regression equations are utilized to illustrate the relationships among the variables, along with post-testing methods such as the Wald test and the Durbin-Watson test to enhance the reliability of the regression findings The results indicate that money supply, inflation, industrial output, and oil prices have a positive correlation with the stock market, whereas interest rates and exchange rates exhibit a negative correlation.
Research objective
This study aims to investigate the factors influencing stock prices in Vietnam To achieve this overarching goal, the research focuses on three specific objectives.
- Building a theoretical model of factors affecting on Vietnam stock price based on attraction model in international stock market and Vietnam economy
This article analyzes the internal factors influencing the Vietnamese stock market, including the Consumer Price Index (CPI) and the State Bank of Vietnam's saving interest rates It also considers external factors such as the USD/VND exchange rate, oil prices, gold prices, and US yields, all of which play a significant role in shaping stock prices in Vietnam Understanding these dynamics is crucial for investors and stakeholders in navigating the complexities of the Vietnamese financial landscape.
- Giving some policy implications for the development of the Vietnamese stock market.
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?
Research scope
The author investigates the interplay between internal factors, such as the Consumer Price Index (CPI) and the State Bank of Vietnam's saving interest rate, and external factors, including the USD/VND exchange rate, oil prices, gold prices, and US yields, in relation to the VN-Index stock index.
The research utilizes a comprehensive monthly time series dataset spanning from January 2008 to December 2023, encompassing 192 observations This timeframe effectively captures the economic and stock market cycles following the global financial crisis, providing updated insights into their dynamics.
Research method and data
This article explores the relationships between internal factors such as the Consumer Price Index (CPI) and the saving interest rate set by the State Bank of Vietnam (SBV), alongside external factors including the USD/VND exchange rate, oil prices, gold prices, and US yields, in relation to the VN-Index stock price index Utilizing the Autoregressive Distributed Lag (ARDL) model for quantitative analysis, the study employs statistical comparison methods to analyze the data among these variables The author processes all data using R software, sourcing information from official entities like the State Bank of Vietnam, the General Statistics Office, the Stock Exchange, and various secondary data sources.
LITERATURE REVIEW
Stock market
The stock market plays a crucial role in the capital market by mobilizing small savings from individuals into significant long-term capital for businesses, economic organizations, and the state, fostering production and economic growth It facilitates trading activities involving various types of securities, occurring in both the primary market—where buyers purchase securities directly from issuers for the first time—and the secondary market, which involves the buying and selling of previously issued securities Thus, the stock market serves as a platform for the issuance and exchange of securities, essential for investment projects and overall economic development.
Based on the circulation of capital sources, the stock market is divided into 2 types:
The primary market is where newly issued securities are bought and sold, facilitating the transfer of capital from investors to issuers In this market, investors purchase these newly issued securities, providing essential funding to the issuers.
The secondary market is where previously issued securities are traded, providing essential liquidity for these financial instruments It is categorized into two types based on operational methods within the stock market.
A concentrated market, such as a stock exchange, is characterized by transactions being centralized at a single point In this market, orders are submitted to the exchange, which facilitates the order matching process to establish transaction prices.
The decentralized market, also known as the over-the-counter (OTC) market, facilitates transactions through a network of securities firms distributed nationwide and interconnected via electronic networks In this market, prices are determined through negotiation The stock market can be categorized into three types based on the goods available.
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
The derivatives market is a specialized financial arena focused on the issuance and trading of derivatives, which are advanced financial instruments This market typically thrives in well-developed stock exchanges, catering to sophisticated investors seeking to engage in complex trading strategies.
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
The stock market plays a crucial role in the capital market by transforming small savings from individuals into substantial capital resources for businesses, economic organizations, and the government, ultimately driving economic development.
15 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
The stock market plays a crucial role in distinguishing ownership from management within enterprises, facilitating the equitization of state-owned enterprises (SOEs) in Vietnam The initial development of the stock market was significantly influenced by the equitization process, which involved large-scale companies and SOEs being publicly auctioned at the Stock Exchange This influx of high-quality stocks not only expanded the market but also attracted both domestic and foreign investors, fostering stable market growth The increased quality of listed stocks helped to limit speculation and stabilize stock prices, largely due to the presence of numerous large-scale enterprises.
The opening of the stock market significantly boosts liquidity and competition in the international arena, enabling companies to access cheaper capital and attract external investments This development enhances international competitiveness and broadens business opportunities for domestic firms Countries like Korea, Singapore, Thailand, and Malaysia exemplify how leveraging stock market opportunities can drive economic growth and investment.
The stock market enables the government to mobilize financial resources efficiently, minimizing inflationary pressures while providing essential tools for executing monetary and financial policies.
Monetary policy significantly influences stock markets due to the reliance of listed companies on bank loans, with an average debt ratio exceeding 50%, and even higher in the real estate sector, reaching 70% to 80% Changes in credit policy directly affect the operations and profitability of these businesses; a loosening of policy allows companies to secure funding for projects and expand production, leading to increased revenue and market share Conversely, a tightening of policy creates challenges for business growth and development.
The stock market plays a crucial role in enabling the Government to restructure the economy by serving as a vital channel for capital mobilization Between 2010 and 2015, the Government successfully raised nearly 715,000 billion VND through government bond auctions on the stock market, marking an impressive 18-fold increase compared to previous periods.
Between 2005 and 2010, the development and transparency of the stock market significantly attracted private sector investments, benefiting both issuing organizations and investors The openness of the legal framework surrounding enterprises and investments has positioned the stock market as a vital channel for capital circulation within the private sector, indicating strong future growth Additionally, the stock market plays a crucial role in supporting the restructuring of the banking system, enabling commercial banks to mobilize substantial capital by issuing shares to meet the State Bank's charter capital requirements during the restructuring process.
Factors affecting stock market
The Law on the State Bank of Vietnam (1997) defines the exchange rate as the ratio between the Vietnamese Dong and foreign currencies, which is regulated and announced by the State Bank of Vietnam For instance, the exchange rate can be expressed as USD/VND = 23.208, meaning 1 USD is equivalent to 23.208 VND.
The exchange rate represents the value of one unit of foreign currency in terms of domestic currency, where the foreign currency serves as the quoted currency and the domestic currency as the valuation currency Essentially, it indicates how many units of domestic currency are needed to purchase a single unit of foreign currency (Nguyen Van Tien, 2008: p 297).
Based on the subject of exchange rate determination, there are two types of exchange rates:
The official exchange rate is established by a country's Central Bank, serving as the foundation for commercial banks and credit institutions to determine their rates for buying and selling foreign currencies This includes immediate transactions, term exchanges, and 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:
The spot exchange rate (SPOT) is the rate quoted by financial institutions at the time of a transaction, agreed upon by both parties, and must adhere to the schedule set by the State Bank Payments between the involved parties are required to be completed within two working days following the commitment to buy or sell.
The forward exchange rate (FORWARDS) is determined and agreed upon by credit institutions, but it must align with the current forward exchange rate set by the State Bank at the time of contract signing.
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
The real exchange rate accounts for inflation and purchasing power in a currency pair, highlighting the relative prices of goods available for export and domestic consumption This rate is a key indicator of a country's international competitiveness.
Based on the method of foreign exchange transfer, there are 2 types of exchange rates:
The telegraphic exchange rate is the rate typically displayed by banks for foreign exchange transfers conducted electronically It serves as the foundational rate for establishing various other exchange rates in the market.
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:
The bilateral exchange rate refers to the value of one currency in relation to another, excluding inflation considerations between the two nations A Nominal Effective Exchange Rate (NEER) greater than 1 indicates that the currency has depreciated, meaning it has lost value compared to other currencies.
< 1, the currency is considered to have appreciated (gained value) against all other currencies
The Nominal Effective Exchange Rate (NEER) is an index that measures the average value of one currency relative to a basket of other currencies, rather than being a direct exchange rate itself.
The world crude oil price is selected as an independent variable in this study, alongside the exchange rate As a significant macroeconomic factor, the global oil price has been utilized as an independent variable in numerous analyses.
Numerous researchers, including Dadgar and Nazari (2012) and Khan (2013), have explored the influence of macroeconomic factors on stock markets globally Dadgar and Nazari focused on the correlation between stock prices and exchange rates in Iran, while Khan examined the relationship between macroeconomic variables and the stock market in Bangladesh.
Oil is a crucial energy commodity that drives global economic development Historically, Vietnam relied entirely on imported gasoline for its production and economic growth Since 2007, oil prices have experienced significant volatility, peaking at $147.27 per barrel in July 2008 before plummeting to $40 per barrel later that year This price fluctuation is influenced by various global factors, including economic growth forecasts, political instability, and speculative trading, all of which can impact production levels.
Figure 1 World crude oil price developments from January 2008 to
In recent years, the Vietnamese Government has focused on reducing foreign currency pressure from petroleum imports and leveraging domestic resources by investing in various petrochemical projects, such as the Nghi Son Thanh Hoa oil refinery and Dung Quat factory, to meet the growing energy demands of the economy Despite these efforts, domestic oil refinery projects currently satisfy only about 20% of the country's demand, necessitating significant petroleum imports for development needs Consequently, fluctuations in global oil prices significantly influence the Vietnamese economy, with crude oil prices serving as a key macroeconomic variable that reflects both essential raw material costs and global economic growth.
In this study, the author selects the world gold price as an independent variable, alongside the exchange rate and global oil prices, to examine its impact on the stock market While researchers typically focus on variables like the consumer price index (CPI), inflation, and money supply, the world gold price remains a significant yet underexplored macroeconomic factor This gap in research motivates the author to investigate the role of gold prices, as evidenced by previous studies, including those by Truong Dong Loc (2014) and Nguyen Thu Thuy, which have recognized gold's importance in economic analysis.
(2018), however, these studies have not yet reached a unified conclusion
In Vietnam, the stock market is tightly regulated by the state, while the gold market remains more flexible, leading to a natural shift of investment towards gold Despite this, gold investment is not predominant in the country, as many view it primarily as a store of value When gold prices surge, the economy feels the impact through reduced public deposits and a decrease in loan supply, which subsequently affects the stock market In the short term, gold serves as a safe haven for investors, who tend to gravitate towards gold during stock market downturns.
Figure 2 World gold price developments in the period of January 2008 -
METHODOLOGY
Data Source
This study analyzes monthly time series data from January 2008 to December 2023, encompassing key variables such as the Vietnam stock price index (VN-Index), USD/VND exchange rate, oil prices, consumer price index (CPI), State Bank of Vietnam savings rate, US yields, and global gold prices, totaling 192 observations Prior to analysis, all variables are transformed using their natural logarithm.
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.
Econometric model
Hosseini (2011) investigated the correlation between stock market performance and key macroeconomic factors, including crude oil prices, industrial production, money supply, and inflation rates in India and China The findings reveal a significant relationship between the stock market index and these macroeconomic variables, both in the short term and the long term.
A study by Dadgar and Nazari (2011) reveals a long-term equilibrium relationship among stock prices, inflation rates, oil prices, and exchange rates The research indicates that oil prices and exchange rates exert opposing effects on stock prices, while inflation consistently influences stock prices in the same direction.
The ARDL model is utilized to analyze the relationship between stock prices and key economic indicators, including exchange rates, oil prices, and gold prices, as demonstrated by various studies.
Expected result
Variables Meaning Examined Hypothesizes Expected
H1 : The relationship between the stock price and USD/VND exchange rate is positive +
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 +
Saving interest rate of SBV
H4 : The relationship between the stock price and Saving interest rate of SBV is negative -
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 -
FINDING
Descriptive Statistics and Correlation Matrix
SP ER OP GP USYield CPI SR
Variable SP ER OP GP USYield CPI SR
From table 2, SP is positively correlated with ER and GP, and negatively correlated with the remaining variables (…)
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
Table 3 Stationary of the variables
SP ER OP GP USYield CPI SR
Table 3 indicates that the p-values for the variables SP, USYield, and CPI are all below 0.05, leading us to accept the alternative hypothesis Consequently, we conclude that the series is stationary, as it does not exhibit unit roots.
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
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
The variables ER, OP, GP, and SR are non-stationary and achieve stationarity only at first differences, indicating they are integrated of order one, I(1) This variation in stationarity among the research model's variables is crucial for satisfying the conditions necessary for employing the ARDL model, as outlined by Pesaran et al (2001).
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
34 cointegration test, the author uses the Bounds test by Pesaran et al (2001) instead of the Johansen test
H0: There is no cointegration relationship among the variables
H1: There is a cointegration relationship among the variables
The findings indicate that the F-statistic value of 3.777079 exceeds the I(1) threshold at all significance levels, leading to the rejection of the null hypothesis (H0) and the acceptance of the alternative hypothesis (H1) This suggests a long-term equilibrium relationship exists among the variables.
Optimal Lag
In time series analysis, various criteria exist for determining the optimal lag, including LR, FPE, AIC, SC, and HQ Among these, the Akaike Information Criterion (AIC) is a prevalent and widely utilized standard This study selects the optimal lag for the variables based on the AIC criterion, with a maximum lag of 8.
Table 6 Top 5 models log_SP log_ER log_OP log_GP log_CPI log_SR log_UY AIC
L(log_SP,4) 0.228** L(log_CPI,3) 0.008 log_ER -2.952*** L(log_CPI,4) 0.121**
L(log_ER,6) 0.740 L(log_SR,5) -0.069 log_OP 0.109* L(log_SR,6) 0.247**
Based on the AIC criterion and the ARDL model estimation results in Table 7, the chosen model is ARDL (4,6,4,0,4,6,3)
Estimate the long-term coefficients of the model
Intercept 15.751 13.942 1.130 0.260 log_ER -0.896 1.450 -0.618 0.538 log_OP -0.671 0.376 -1.785 0.076 lop_GP 0.314 0.442 0.709 0.479 log_CPI 1.199 1.166 1.028 0.306 log_SR -0.866 0.267 -3.245 0.001 log_UY 0.586 0.285 2.055 0.042
In the long term, the independent variable log_SR negatively impacts the dependent variable log_SP at a 1% significance level Conversely, the variable log_UY positively influences log_SP at a 5% significance level, suggesting that an increase in log_UY can enhance the stock ratio Furthermore, there is a negative correlation between log_SP and oil prices (log_OP) at the 10% significance level.
The variables log_ER, log_GP, and log_CPI show no significant effects on the dependent variable, with p-values exceeding 0.05, indicating a lack of evidence to support their influence within this model.
Estimate the short-run coefficients of the model
Case 2: Restricted Constant and No Trend
The author employs the Error Correction Model (ECM) to evaluate the short-term effects of independent variables on the dependent variable The estimation results of the short-term coefficients are detailed in Table 9, derived from the ARDL(4,6,4,0,4,6,3) model.
The error correction term indicates the speed at which short-term coefficients adjust to reach long-term equilibrium within the model The coefficient of the error correction term, ECM(-1), is statistically significant, highlighting its importance in the analysis.
The study confirms a cointegration relationship at the 1% significance level, as indicated by the Bounds test The error correction term falls within the range of [-1 < -0.081 < 0], suggesting that 8.1% of the short-term deviations are corrected to achieve long-term equilibrium.
The analysis reveals that the independent variable log_ER significantly negatively affects the dependent variable log_SP at the 1% level in the short term Furthermore, log_SP shows a positive correlation with the independent variables log_OP and log_UY at the 1% and 10% levels, respectively In contrast, the independent variables log_CPI and log_SR do not exhibit statistical significance concerning the dependent variable Additionally, fluctuations in global gold prices (log_GP) do not account for the short-term volatility of the stock index.
Figure 5 Volatility of the stock ratio in the short and long term
Figure 5 highlights the contrast between short-term volatility and long-term stability in stock ratios The black line represents the pronounced cyclical fluctuations of log_SP, reflecting substantial short-term volatility In contrast, the red line illustrates a stable long-term relationship, indicating that despite the considerable short-term fluctuations in log_SP, the long-term trend remains largely unaffected.
Model Diagnostic Tests
The author uses the Durbin-Watson test to examine autocorrelation in the research model
H0: There is no first-order autocorrelation
H1: There is first-order autocorrelation
The test shows that the DW value > 2 and p-value > 0.05, so we accept the null hypothesis (H0), indicating that the model does not have autocorrelation
The Breusch-Pagan test is used to check whether the model exhibits heteroscedasticity
The test results show that the p-value < significance level α = 5%, so we reject the null hypothesis (H0) and accept the alternative hypothesis (H1), indicating that the model exhibits heteroscedasticity
The author tackles the challenge of heteroscedasticity by implementing robust standard errors While a model exhibiting heteroscedasticity can still yield reliable coefficient estimates, the standard errors may not be minimized To address this, White (1980) introduced the Robust Standard Errors method, which preserves the estimated parameter values while re-estimating the variances.
Table 12 Estimation results after addressing the issue of heteroscedasticity
L(log_SP,4) 0.228** L(log_CPI,3) 0.008 log_ER -2.952*** L(log_CPI,4) 0.121**
L(log_ER,6) 0.740 L(log_SR,5) -0.069 log_OP 0.109 L(log_SR,6) 0.247**
The Shapiro-Wilk test checks the hypothesis about the normal distribution of the data
H0: The data is normally distributed
H1: The data is not normally distributed
The results show that the p-value = 0.5963 > significance level α = 5%, so we accept the null hypothesis (H0), indicating that the model is normally distributed
The author uses the RESET test to check for structural errors in the model
H0: The regression model is correctly specified (no structural errors)
H1: The regression model has structural errors (there are omissions or errors in the model structure)
The results show that the p-value = 0.2593 > significance level α = 5%, so we accept the null hypothesis (H0), indicating that the model is correctly specified
The author tests the stability of the model using residual tests, including the Cumulative Sum of Recursive Residuals (CUSUM) and the Modified Cumulative Sum of Recursive Residuals
The analysis reveals that both the CUSUM and Modified CUSUM tests fall within the confidence bands at a 5% significance level, confirming the stability of the model's residuals and indicating overall model stability.
H1 : The relationship between the stock price and USD/VND exchange rate is positive Reject
H2 : The relationship between the stock price and oil price is positive Accept
H3 : The relationship between the stock price and gold price is positive Reject
H4 : The relationship between the stock price and Saving interest rate of SBV is negative Accept
H5 : The relationship between the stock price and CPI is positive Reject
H6 : The relationship between the stock price and US yield is negative Reject
DISCUSSION
Based on results of ADRL test, it indicated that
- The external factor – oil price impacts positively on stock price in the short term and negatively on stock price in the long term
- The external factor – US yield impacts positively on stock price in the short term
- The external factor - USD/VND exchange rate impacts negatively on stock price in the short term
- The internal factor 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
In addition, it has other aspects about relationships between international factors and stock price
Crude oil futures prices exhibit an unclear relationship with the stock market, particularly in Vietnam, where state intervention distorts the signals from oil price fluctuations Research by Dadgar and Nazari (2012) indicates that during economic downturns, oil prices tend to peak and align with the movements of the US stock market Notably, a strong correlation exists both before and after these oil price peaks, primarily due to the significant influence of oil prices on goods supply and consumer demand within the economy.
Research by Iran or Khan (2013) highlights that the stock market's asymmetric response to fluctuations in oil prices is influenced by varying investor strategies related to their investment horizons These differing strategies among groups with distinct investment timelines can lead to diverse impacts on the overall market.
US government bond yields have a positive correlation with the VN-Index, as rising yields indicate expectations of stronger growth in the US economy This growth presents opportunities for Vietnam's exports and attracts foreign direct investment (FDI) due to increased aggregate demand, which can positively influence the stock market in the short term However, higher bond yields may lead to increased inflation expectations, prompting the US Federal Reserve to tighten the money supply and raise base interest rates This can result in higher borrowing costs and foreign debt repayment expenses, ultimately reducing investment cash flow and negatively affecting the stock market.
In 2014, research indicated a negative correlation between stock prices and government bond yields in the United States and other nations Hsing (2011) further illustrated this relationship using an exponential GARCH model, showing that the US stock market index is adversely influenced by US government bond yields Notably, in the fourth quarter of 2023, attention is drawn to the 10-year US Treasury bond yield, which has surged above 5% within a span of three months, affecting various borrowing costs This increase in yields also has implications for Vietnam's financial landscape.
US government bonds represents the interest rate level of the US economy When
47 this yield increases, other interest rates are also high, causing the cash flow to tend to return to the US and leave emerging markets, including Vietnam
The USD/VND exchange rate shows a negative correlation with the VN-Index, primarily due to globalization facilitating foreign investment in the Vietnamese stock market As foreign investors purchase Vietnamese stocks, they convert their currencies into VND, increasing VND demand and USD supply in the foreign exchange market This process leads to a depreciation of the USD against the VND, while a surge in investment drives the VN-Index upward Supporting this observation, two studies by Agrawal further illustrate this relationship.
Research has consistently highlighted the significant impact of exchange rates, particularly the DXY, on the stock market Rjoub (2012) emphasized this influence, while Phan Thị Bích Nguyệt & Phạm Dương Phương Thảo (2013) identified a negative correlation between the USD/VND exchange rate and stock prices Furthermore, Nguyen Thu Thuy (2018) noted that in Vietnam, the stock market is subject to state management, contrasting with the more flexible gold market, which inevitably attracts investment flows towards gold.
Gold futures prices exhibit a negative correlation with the stock market, whereas domestic gold prices show no such correlation In Vietnam, the economy is not fully market-driven, and both the gold and stock markets remain under state monopoly Consequently, the relationship between global gold prices and the stock market is ambiguous, largely influenced by investor behavior and government policies.
Moreover, it can be seen that when the US government bond yield increases, the
The US dollar, indicated by the DXY, is expected to rise, often correlating with exchange rate pressures that may prompt the State Bank of Vietnam (SBV) to either sell foreign exchange reserves or increase VND reserves through higher interest rates, leading to market adjustments Additionally, the government is likely to utilize the Consumer Price Index (CPI) as a key tool for forecasting inflation Furthermore, economic and political instability is driving investors to increase their investments in gold, resulting in a rise in gold prices.
Some aspects about relationships between internal factors and stock price:
Research by Alam and Gazi (2009) indicates a negative correlation between saving interest rates and stock prices in both developed and developing countries Additionally, He and Cao (2007) found that fluctuations in saving interest rates and stock prices are closely linked to changes in investment cash flow In the context of the Vietnam stock market, this relationship is evident during the period from Q4 2022 to Q2 2023, when an increase in the State Bank of Vietnam's saving rate coincided with a decline in stock prices Conversely, from Q4 2023 to Q2 2024, a decrease in the saving rate was associated with a significant improvement in stock prices.
In the study of Richards and Simpson (2009), it indicated that the CPI consumer price index can affect the trend of the stock market When CPI increases, the stock
49 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
RECOMMENDATION
Recommendation
In recent years, the Vietnamese stock market has experienced rapid growth, reflecting the overall development of the country's economy To further enhance this market, it is essential to implement policies that support economic growth, which in turn will strengthen the stock market Considering Vietnam's socio-economic landscape, the author suggests several strategies for policymakers aimed at fostering the continued development of the Vietnamese stock market.
Policymakers should implement a more flexible exchange rate mechanism to enhance the export of domestic goods globally Research indicates that exchange rate fluctuations negatively impact the stock market A stable exchange rate, coupled with flexible adjustments, can stimulate exports and reassure import businesses, allowing domestic and foreign investors to better predict economic conditions and stabilize stock prices around their true value The exchange rate is a complex and sensitive variable in macroeconomic management, where each fluctuation can affect various goals, such as promoting exports while posing risks to businesses reliant on imported raw materials and those with foreign currency loans Effective exchange rate management requires careful consideration of the dong's value in relation to other macroeconomic variables to maintain overall economic balance.
The State Bank's intervention and strict control of the USD/VND exchange rate aim to support exports and address the Vietnamese preference for USD in trade Historically, the exchange rate has shown low volatility, making investors sensitive to any unexpected changes To foster a stable business environment, the government should maintain a controlled exchange rate while allowing international transactions in various foreign currencies to alleviate pressure on USD supply Additionally, businesses should utilize derivative instruments like forward contracts and options to ensure that foreign currency supply and demand do not disrupt their operations, promoting more stable growth in their securities.
In economic management, achieving high growth must align with sustainability and the improvement of people's quality of life, necessitating inflation to be maintained at an appropriate level While empirical evidence suggests inflation does not directly affect stock prices, numerous studies indicate a negative relationship between the two, with the Consumer Price Index (CPI) serving as a key inflation indicator that indirectly impacts stock prices To foster stock market development, policymakers must implement effective tools and strategies to keep inflation in check, avoiding inflationary shocks similar to those experienced in 2008, which can adversely affect economic quality and growth.
Economic growth in Vietnam is currently facing challenges due to stock price volatility Policymakers must closely monitor fluctuations in the Consumer Price Index (CPI) to effectively predict inflation trends By doing so, they can implement appropriate measures to stabilize the economy and support the development of the Vietnamese stock market.
Oil is a vital global resource essential for the development of countries, including Vietnam The rising oil prices often indicate global economic growth driven by increased demand To enhance the resilience of Vietnamese enterprises against fluctuations in global oil prices, the government must implement a mechanism for adjusting domestic gasoline prices in response to market changes.
To enhance macroeconomic information effectiveness, it is crucial to recognize the stock market's strong reaction to various types of information, including coinciding, delayed, and predictive data Policymakers must ensure that the information used to formulate short, medium, and long-term strategies is accurately received, analyzed, and evaluated by investors, as this influences stock price forecasts and investment strategies The accuracy, transparency, and timeliness of this information significantly affect market dynamics and investor behavior Therefore, professional information disclosure, regulated by legal frameworks, is essential to prevent insider trading and conflicts of interest that could distort market integrity.
Fluctuations in the Vietnamese stock market significantly affect the capital mobilization of joint stock companies, necessitating well-planned strategies to protect company value Listed companies should evaluate the Consumer Price Index (CPI) and oil prices when considering share issuance opportunities Additionally, in response to international gold futures price indexes and USD/VND exchange rates, these companies can effectively raise capital through bond issuance.
Individual investors must adopt strategic approaches to navigate unusual stock market fluctuations For instance, during periods of rising inflation, investing in stocks can be beneficial Similarly, when global oil prices surge, focusing on oil and gas stocks may yield positive returns Additionally, a strengthening USD should prompt careful consideration before investing in the stock market Conversely, if world gold futures prices experience a significant increase, it may be wise for investors to avoid stock market investments.
Some limitations and future research directions
Due to limited research time and knowledge, the thesis cannot avoid certain shortcomings and limitations Among them, it can be mentioned:
The research analyzes the VN-Index closing prices from January 2008 to December 2023, acknowledging that fluctuations may arise due to changes in listed companies on the Ho Chi Minh City Stock Exchange Furthermore, the VN-Index is significantly impacted by a few major companies with large market capitalizations, which limits its ability to represent the overall trends of the stock market and the performance of the majority of listed firms.
The reliance on market representative indexes fails to capture the unique influence of independent variables on individual stocks or specific industry sectors This limitation presents an opportunity for future research, such as examining how international factors affect fluctuations within the banking industry.
The Vietnamese stock market is relatively nascent compared to more established markets like those in the US and UK, resulting in limited data availability and shorter time series This lack of extensive historical data hampers the depth and completeness of research findings in Vietnam, as studies in more developed markets benefit from long-term data that capture various market fluctuations and economic changes, leading to more robust and practical insights.
The research currently overlooks several key variables influencing the Vietnamese stock market, including export and import volumes, GDP, borrowing interest rates, and political stability indices This gap presents an opportunity for future studies to develop models that more comprehensively assess the impact of these macroeconomic factors on the Vietnamese stock market.
The study employs the ARDL model to analyze both the short-term and long-term effects of international factors on the Vietnamese stock market Nonetheless, various other models are also utilized to explore this relationship Moving forward, the author plans to further estimate and compare different models to identify the most appropriate approach for examining these impacts.
CONCLUSION
The relationship between international economic factors and the stock market is a compelling research topic that has garnered attention from both domestic and international scholars However, there is a lack of consensus regarding the nature and extent of this relationship, largely due to varying economic characteristics and policies across different countries and time periods This study specifically investigates the influence of internal factors, such as the Consumer Price Index (CPI) and the State Bank of Vietnam's saving rate, alongside external factors including the USD/VND exchange rate, oil prices, gold prices, and US yields, on the Vietnamese stock market from January to the present.
The research findings utilize a variety of methods, including the ADF and PP tests for assessing the stationarity of data series, along with the ARDL method to explore the integration relationships between variables This approach helps identify both short-term and long-term relationships while also addressing potential model deficiencies.
The study analyzes seven key variables: the VN-Index stock price index, USD/VND exchange rate, gold price, world oil price, US yield, SBV rate, and CPI Among these, the stock price index, US yield, and CPI are identified as stationary series, while the remaining four variables exhibit stationarity at their first difference.
The author conducts co-integration analysis to examine the relationships among the variables in the model Additionally, various model defect tests are performed, including the Durbin-Watson test for autocorrelation, the Breusch test for heteroscedasticity, normal distribution testing, and the Ramsey RESET test for assessing model suitability.
The stability testing of the model using the CUSUM and MOSUM tests indicates that the model is free from autocorrelation issues and exhibits a normal distribution, confirming its suitability and stability Despite the presence of heteroscedasticity, the author has effectively addressed this issue to ensure the reliability of the coefficients Furthermore, the findings reveal a long-term equilibrium relationship among the variables within the model.
The ARDL estimation reveals that oil prices and US yields positively influence stock prices, while the USD/VND exchange rate has a negative impact in the short term Additionally, factors such as gold prices, CPI, and the SBV rate show no significant effect on stock prices However, previous studies indicate a relationship between these factors and stock prices, which is also supported by evidence from the Vietnamese economy and its stock market.
The integration test indicates a balanced relationship among the seven variables in the model In the short term, oil prices positively influence the Vietnamese stock market, while exchange rates have a negative effect Conversely, in the long term, oil prices negatively impact the market These findings align with previous research, such as Rjoub (2012), which identified both long-term and short-term relationships between exchange rates and the Turkish stock market, and Nguyen Thu Thuy (2018), who examined the effects of macroeconomic variables on the Vietnamese stock market index.
The Vietnamese economy operates under a state-controlled system, where both the gold and stock markets are monopolized by the government As a result, the relationship between gold prices and the stock market remains ambiguous, primarily influenced by the investment behaviors of individuals.
Vietnam faces potential economic challenges, including the risk of high inflation and political instability, which contribute to significant fluctuations in the stock market Despite these challenges, rising average income levels are prompting more individuals to consider investing, with gold emerging as a low-risk option Additionally, there is a positive correlation between oil prices and stock prices in Vietnam, an oil-importing nation significantly influenced by global oil price fluctuations As world oil prices rise, it often indicates global economic growth, enabling Vietnamese enterprises to enhance exports and thereby support domestic economic growth This relationship highlights how the VN-Index's volatility is impacted by oil price shocks in both the short and long term.
The Vietnamese stock market exhibits an inverse correlation with the exchange rate, primarily due to the country's trade deficit and underdeveloped science and technology sectors, leading to a reliance on imports for machinery and raw materials The strength of the US dollar against the Vietnamese dong influences product pricing, and Vietnamese businesses often prefer USD loans while individuals tend to hold USD to mitigate risk Consequently, when the exchange rate rises or the dong depreciates, investor insecurity increases, resulting in a decline in the stock market.
In their 2009 study published in the International Journal of Business and Management, Alam and Uddin investigate the relationship between interest rates and stock prices in both developed and developing countries The empirical evidence presented highlights how fluctuations in interest rates can significantly impact stock market performance, offering insights valuable for investors and policymakers alike The research underscores the importance of understanding this relationship to make informed financial decisions For more details, the full article can be accessed at SSRN.
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Nguyễn Thị Liên Hoa và Lương Thị Thúy Hường (2014) đã nghiên cứu mối liên kết động giữa tỷ giá hối đoái và biến động thị trường chứng khoán tại các quốc gia mới nổi ASEAN Nghiên cứu này được công bố trong Tạp chí Phát triển và Hội nhập, số 17(27), trang 31-35 Kết quả cho thấy sự tương tác giữa tỷ giá hối đoái và thị trường chứng khoán có ảnh hưởng đáng kể đến các quyết định đầu tư và chính sách kinh tế trong khu vực.
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The stock market plays a crucial role in a developed economy, serving as a popular investment avenue for many Over the past two decades, the Vietnamese stock market has shown significant growth and success, influenced by various international and domestic factors This study analyzes the impact of international elements on the Vietnamese stock market, utilizing data from January 2008 to December 2023, including CPI, SBV's saving rate, USD/VND exchange rate, oil price, gold price, and US yield Employing the ADRL research model and R software, the findings reveal that oil prices positively affect stock prices in the short term but negatively in the long term, while US yields also have a short-term positive impact Conversely, the USD/VND exchange rate and SBV's saving rate negatively influence stock prices in the short term Although gold prices and CPI were initially thought to have no effect, the researcher ultimately concluded that they positively impact the stock market.