The impact of macroeconomic indicators on stock prices in vietnam , luận văn thạc sĩ

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business - HUYNH THANH DUNG THE IMPACT OF MACROECONOMIC INDICATORS ON STOCK PRICES IN VIETNAM MASTER OF BUSINESS (Honours) SUPERVISOR: Dr PHAM QUOC HUNG Ho Chi Minh City – 2013 i ACKNOWLEDGEMENTS Firstly, I would like to express my very great appreciation to my supervisor – Dr Pham Quoc Hung – for his enthusiastic guidance, valuable and constructive suggestions during the planning and development of this thesis I would also like to thank all of my lecturers at International School of Business (ISB) – University of Economics Ho Chi Minh City (UEH) – for sharing their knowledge and experience during my master course Enthusiastic assistance provided by the ISB’s executive board and staffs was also greatly appreciated I am grateful to all my friends and classmates form MBus – ISB for their support Finally, I would like to express my special thanks to my wife for her support and encouragement throughout my study ii ABSTRACT This study investigates the impact of macroeconomic indicators on Vietnamese stock prices using monthly data spanning from January 2008 to May 2013 Macroeconomic variables used in this study are industrial production index, lending interest rate, consumer price index (as a proxy for inflation), and exchange rate The study employs the unit root test, cointegraion test developed by Johansen and Jesulius (1990) and Vector Error Correction Model (VECM) in order to examine the relationship between macroeconomic indicators and stock prices The empirical results reveal that there is a cointegrated relationship between the stock price and four selected macroeconomic variables in Vietnam, indicating the presence of long run equilibrium relationship In the long run, the industrial production and interest rate have significant positive effect on stock prices In contrast, consumer price index has significant negative impact on stock prices In the short run, stock prices are only affected by itself and the interest rate at onemonth lag The industrial production index and consumer price index have no effect on stock prices Furthermore, the findings show that the exchange rate does not influence stock prices in the short run as well as in the long run Keywords: Stock price, macroeconomic variables, cointegation, VECM iii TABLE OF CONTENT ACKNOWLEDGEMENTS i ABSTRACT ii TABLE OF CONTENT iii LIST OF FIGURES vi LIST OF TABLES .vii LIST OF ABBREVIATIONS .ix CHAPTER 1: INTRODUCTION 1.1 Research background 1.2 Research problems 1.3 Research objectives 1.4 Significance of the research 1.6 Research methodology and scope 1.7 Research structure CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical framework 2.1.1 The top-down approach 2.1.2 The dividend valuation model 10 2.2 Relationship between industrial production and stock price 11 2.3 Relationship between interest rate and stock price 13 2.4Relationship between inflation and stock price 2.5Relationship between exchange rate and stock price 2.6Hypotheses summary 2.7Research model CHAPTER 3: RESEARCH METHODOLOGY 3.1Research process 3.2Measurement of variables 3.2.1Dependent variable 3.2.2Independent variables 3.3Data collection and sample size 3.4Model specification 3.5Method of data analysis 3.5.1Unit root test 3.5.2The order of integration 3.5.3Cointegration concept 3.5.4Cointegration test 3.5.5Vector Error Correction M CHAPTER 4: DATA ANALYSIS AND RESULTS 4.1Descriptive statistics 4.2Correlation analysis 4.3Unit root test 4.4Cointegration test 4.4.1Optimal lag length select 4.4.2Cointegration test 4.5Hypotheses testing 4.5.1The long run relationship 4.5.2The short run relationshi 4.6Diagnostic tests 4.6.1Autocorrelation test 4.6.2Normality test 4.6.3Heteroskedasticity test CHAPTER 5: CONCLUSIONS AND IMPLICATIONS 5.1Conclusions 5.2Implications 5.3Limitations and further research REFERENCES APPENDICES vi LIST OF FIGURES Figure 1.1 VN-Index from January 2001 to May 2013 Figure 2.1 VN-Index and Industrial Production Index 13 Figure 2.2 VN-Index and Interest Rate 17 Figure 2.3 VN-Index and CPI 20 Figure 2.4 VN-Index and Exchange Rate 23 Figure 2.5 Conceptual model 24 Figure 3.1 Research process 25 vii LIST OF TABLES Table 3.1 Description of variables 27 Table 4.1 Descriptive information 35 Table 4.2 Correlation matrix 37 Table 4.3 Result of unit root test at levels 38 Table 4.4 Result of unit root test after first differencing 38 Table 4.5 VAR lag order selection criteria 40 Table 4.6 Result of cointegration test 41 Table 4.7 Result of cointegrating vector 43 Table 4.8 Result of long run relationship 44 Table 4.9 Result of short run relationship 47 Table 4.10 Hypotheses testing summary 50 Table 4.11 Result of autocorrelation 51 Table 4.12 Result of normality test 52 Table 4.13 Result of heteroskedasticity 53 Table A1 Correlation Matrix 62 Table A2 Result of ADF test for LVN 63 Table A3 Result of ADF test for D(LVN) 63 Table A4 Result of ADF test for LIP 64 Table A5 Result of ADF test for D(LIP) 65 Table A6 Result of ADF test for LIR 66 viii Table A7 Result of ADF test for D(LIR) 67 Table A8 Result of ADF test for LCPI 67 Table A9 Result of ADF test for D(LCPI) 68 Table A10 Result of ADF test for LEXR 69 Table A11 Result of ADF test for D(LEXR) 70 Table A12 Result of optimal lag length selection 71 Table A13 Result of cointegration test 71 Table A14 Result of VECM 75 Table A15 Result of coefficients of ECM 76 Table A16 Serial correlation LM test 77 Table A17 Correlogram Q-statistics 79 Table A18 Heteroskedasticity test 80 ix LIST OF ABBREVIATIONS ADF Augmented Dickey Fuller CAPM Capital Asset Pricing Model CPI Consumer Price Index DVM Dividend Valuation Model ECM Error Correction Mechanism ECT Error Correction Term EViews Econometric Views EXR Exchange Rate GDP Gross Domestic Product GNP Gross National Product GSO General Statistic Office HNX-Index Hanoi Stock Price Index HNX Hanoi Stock Exchange HOSE Ho Chi Minh Stock Exchange IFS International Financial Statistics IPI Industrial Production Index IPO Initial Public Offering IR Interest Rate OLS Ordinary Least Squared SPSS Statistical Package for the Social Sciences 68 Test critical values: *MacKinnon (1996) one-sided p-values Augmented Dickey-Fuller Test Equation Dependent Variable: D(LCPI) Method: Least Squares Date: 11/05/13 Time: 12:49 Sample (adjusted): 2008M03 2013M05 Included observations: 63 after adjustments Varia LCPI( D(LCP R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat Table A9 Result of ADF test for D(LCPI) Null Hypothesis: D(LCPI) has a unit root Exogenous: None Lag Length: (Automatic based on SIC, MAXLAG=10) Augmented Dickey-Fuller test statistic Test critical values: *MacKinnon (1996) one-sided p-values Augmented Dickey-Fuller Test Equation Dependent Variable: D(LCPI,2) Method: Least Squares Date: 11/05/13 Time: 12:50 Sample (adjusted): 2008M03 2013M05 Included observations: 63 after adjustments Variable D(LCPI(-1)) R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat Table A10 Result of ADF test for LEXR Null Hypothesis: LEXR has a unit root Exogenous: None Lag Length: (Automatic based on SIC, MAXLAG=10) Augmented Dickey-Fuller test statistic Test critical values: *MacKinnon (1996) one-sided p-values Augmented Dickey-Fuller Test Equation Dependent Variable: D(LEXR) Method: Least Squares Date: 11/05/13 Time: 12:52 Sample (adjusted): 2008M02 2013M05 Included observations: 64 after adjustments Variabl LEXR(R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat Table A11 Result of ADF test for D(LEXR) Null Hypothesis: D(LEXR) has a unit root Exogenous: None Lag Length: (Automatic based on SIC, MAXLAG=10) Augmented Dickey-Fuller test statistic Test critical values: *MacKinnon (1996) one-sided p-values Augmented Dickey-Fuller Test Equation Dependent Variable: D(LEXR,2) Method: Least Squares Date: 11/05/13 Time: 12:52 Sample (adjusted): 2008M03 2013M05 Included observations: 63 after adjustments Variable D(LEXR(-1)) R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat 71 Table A12 Result of optimal lag length selection VAR Lag Order Selection Criteria Endogenous variables: LVNI LIP LIR LCPI LEXR Exogenous variables: C Date: 11/04/13 Time: 20:44 Sample: 2008M01 2013M05 Included observations: 60 Lag * indicates lag order selected by the criterion LR: sequential modified LR test statistic (each test at 5% level) FPE: Final prediction error AIC: Akaike information criterion SC: Schwarz information criterion HQ: Hannan-Quinn information criterion Table A13 Result of cointegration test Date: 11/04/13 Sample (adjusted): 2008M04 2013M05 Included observations: 62 after adjustments Trend assumption: Linear deterministic trend (restricted) Series: LVNI LIP LIR LCPI LEXR Lags interval (in first differences): to Unrestricted Cointegration Rank Test (Trace) Hypothesized No of CE(s) Eigenvalue None * At most At most At most At most 72 Trace test indicates cointegrating eqn(s) at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegration Rank Test (Maximum Eigenvalue) Hypothesized No of CE(s) None At most At most At most At most Max-eigenvalue test indicates no cointegration at the 0.05 level * denotes rejection of the hypothesis at the 0.05 level **MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegrating Coefficients (normalized by b'*S11*b=I): LVNI -1.350601 -3.678790 -6.210863 7.537908 -0.316808 Unrestricted Adjustment Coefficients (alpha): D(LVNI) D(LIP) D(LIR) D(LCPI) D(LEXR) Cointegrating Equation(s): Normalized cointegrating coefficients (standard error in parentheses) LVNI 73 Adjustment coefficients (standard error in parentheses) D(LVNI) 0.002357 (0.01676) D(LIP) 0.039303 (0.00790) D(LIR) -0.012474 (0.01111) D(LCPI) 0.019712 (0.02526) D(LEXR) -0.003703 (0.00249) Cointegrating Equation(s): Normalized cointegrating coefficients (standard error in parentheses) LVNI 1.000000 0.000000 Adjustment coefficients (standard error in parentheses) D(LVNI) -0.145714 -0.487917 (0.04322) D(LIP) D(LIR) D(LCPI) 0.009462 (0.55499) -1.516417 (0.02247) -0.076704 (0.28857) 0.281272 (0.03074) 0.218729 (0.39478) -0.179853 (0.06687) (0.85873) D(LEXR) 0.003947 0.156000 (0.00714) (0.09164) Cointegrating Equation(s): 74 Normalized cointegrating coefficients (standard error in parentheses) LVNI 1.000000 0.000000 0.000000 Adjustment coefficients (standard error in parentheses) D(LVNI) -0.302319 0.036363 -0.151213 (0.07663) (0.56823) (0.09858) D(LIP) 0.028352 -1.579657 0.171389 (0.04199) (0.31135) (0.05401) D(LIR) -0.123103 0.436608 -0.147997 (0.05708) (0.42325) (0.07343) D(LCPI) -0.036976 0.676193 0.477539 (0.11779) (0.87336) (0.15152) D(LEXR) -0.007477 0.194247 -0.006150 (0.01323) (0.09813) (0.01702) Cointegrating Equation(s): Normalized cointegrating coefficients (standard error in parentheses) LVNI 1.000000 0.000000 0.000000 0.000000 Adjustment coefficients (standard error in parentheses) D(LVNI) D(LIP) 75 D(LIR) D(LCPI) D(LEXR) Table A14 Result of VECM Vector Error Correction Estimates Date: 11/04/13 Time: 14:41 Sample (adjusted): 2008M03 2013M05 Included observations: 63 after adjustments Standard errors in ( ) & t-statistics in [ ] Cointegrating Eq: LVNI(-1) LIP(-1) LIR(-1) LCPI(-1) LEXR(-1) Error Correction: CointEq1 D(LVNI(-1)) D(LIP(-1)) D(LIR(-1)) D(LCPI(-1)) D(LEXR(-1)) R-squared Adj R-squared Sum sq resids S.E equation F-statistic Log likelihood Akaike AIC Schwarz SC Mean dependent S.D dependent Determinant resid covariance (dof adj.) Determinant resid covariance Log likelihood Akaike information criterion Schwarz criterion Table A15 Result of coefficients of ECM Dependent Variable: D(LVNI) Method: Least Squares Date: 11/04/13 Time: 23:10 Sample (adjusted): 2008M03 2013M05 Included observations: 63 after adjustments D(LVNI) = C(1)*( LVNI(-1) - 0.844049770702*LIP(-1) - 0.416629848836 *LIR(-1) + 0.209795920238*LCPI(-1) - 0.155163524867*LEXR(-1) ) + C(2)*D(LVNI(-1)) + C(3)*D(LIP(-1)) + C(4)*D(LIR(-1)) + C(5)*D(LCPI( -1)) + C(6)*D(LEXR(-1)) + C(7) Coefficient Std Error t-Statistic Prob C(1) C(2) C(3) C(4) C(5) C(6) C(7) R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Table A16 Serial correlation LM test Breusch-Godfrey Serial Correlation LM Test: F-statistic Obs*R-squared Test Equation: Dependent Variable: RESID Method: Least Squares Date: 11/04/13 Time: 15:37 Sample: 2008M03 2013M05 Included observations: 63 Presample missing value lagged residuals set to zero Variable C(1) C(2) C(3) C(4) C(5) C(6) RESID(- RESID(R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood Durbin-Watson stat 79 Table A17 Correlogram Q-statistics 80 Table A18 Heteroskedasticity test Heteroskedasticity Test: Breusch-Pagan-Godfrey F-statistic Obs*R-squared Scaled explained SS Test Equation: Dependent Variable: RESID^2 Method: Least Squares Date: 11/04/13 Time: 15:38 Sample: 2008M03 2013M05 Included observations: 63 R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) ... Lanka to investigate the relation between macroeconomic indicators including inflation and stock prices The finding of this study indicates the insignificant negative impact of inflation on stock. .. Furthermore, there exits limited study regarding the examination of how macroeconomic indicators influence stock prices in emerging markets, especially in Vietnam (Hussainey & Ngoc, 2009) Hussainey... profits along with economic growth, they will be willing to pay more for buying stocks, leading to an increase in the stock prices Conversely, if there is a decline in economic growth, they will