Study On Volatility Of Vietnamese Stock Market And Its Impact Factors

Volatility has attracted increasing attention of many authors during the past three decades.Volatility is unobservable in financial market and it is measured by standard deviations or variance of return which can be directly considered as a measure of risk of assets.There are three main reasons why modelling volatility has been subject of many theoretical and practical studies recently.Firstly,volatility is integral factor of derivative security pricing formula.Black-Scholes suggested an option pricing formula as a function of volatility.Moreover,volatility index becomes one of financial instruments in recent time.Volatility index(VIX)started to trade in futures from 2004.Secondly,if investors base on mean-variance relationship for asset allocation,volatility plays an important role in helping them give the investment decision.As a proxy of risk,volatility is not only of great concern of investors but also policy makers.Investors are interested in the direct impact of time varying volatility on the pricing and hedging derivatives.On the other hand,policy makers are mainly focused on the effect of volatility on the stability of financial markets in particular and the whole economy in general.Finally,volatility estimation is essential in many value-at-risk models.Because of a number of its applications in financial market,volatility is deserved of plentiful studies for accurate estimation and forecast.Although there has been a huge number of studies focusing on modelling stock price volatility by GARCH models,the emerging capital markets has been paid little attention,comparable to mature capital counterparts.The emerging markets in general and the Asian markets in particular are increasingly of concerns of investors who want to diversify their portfolios.Vietnam market can be seen as the smallest market in Asian,which has the similar features with the other developing and emerging market.While studies on stock markets in mature and emerging markets are widely available,so far not many researches have focused on Vietnam.Although being set up much later than many countries in the world,since the establishment of the first securities trading center of Vietnam Stock Market in Hochiminh City on 28 July 2000,Vietnamese stock market has been growing rapidly with improved transaction volume and market capitalization.This thesis examines and models the characteristics of stock return volatility in Vietnam's stock market.This thesis makes six major contributions:Firstly,this thesis investigates and models the characteristics of stock return volatility in Vietnam stock market.The Generalized Auto-Regressive Conditional Heteroscedasticity(GARCH(p,q))model is used to capture the nature of volatility,the threshold GARCH(TGARCH)and GARCH-in-mean(GARCH-M)are for examining leverage effects and risk-return premium respectively.Secondly,the next contribution mentioned in this thesis is to examine the features of the stock return volatility and the presence of structural breaks in return variance of VN-Index in the Vietnam stock market by using the iterated cumulative sums of squares(ICSS)algorithm.This thesis detects the sudden changes using the interated cumulative sum of squares(ICSS)algorithm and evaluates the impact of sudden changes on volatility asymmetry and persistence using GARCH and GJR-GARCH models.In particular,we examines whether the inclusion of sudden changes in GARCH and GJR-GARCH models reduces the coefficients of volatility asymmetry and persistence or not.Thirdly,this thesis investigates the impact of monetary policy via some instrument policies of the State Bank of Vietnam on stock returns with the approach of managing the fever of the stock market;and the response of stock returns to the monetary policy in both cases of increasing and declining stock prices,in which a prediction of movement of stock returns will be calculated based on other conditions of monetary policy variables.A VAR analysis was deployed to find the impact and responses of stock returns and monetary policy with only one month lags of effect.The result shows that the stock returns could be well forecasted by using the past information of monetary policy,but the SBV only observed the movement of stock returns to decide the change of exchange rate.All of the impacts among variables such as stock returns,inflation rate,exchange rate and interest rate are strongly in the second period.Fourthly,the regime changes caused by country-specific economic events and regulations related to the stock market can make the volatility raise or reduce drastically.Thus,the identification and modeling of volatility due to regime changes plays an important role in the successful performance of the stock market.It can assist in advising investors on decisions concerning pricing equity,portfolio investment and management and hedging.It can also assist policy-makers in the financial policy making process.In addition,similar to the findings in the previous researches,it is claimed that the high persistence of volatility is reduced when considering regime changes.This means the models that incorporate structural breaks provide a more precise conditional variance,and help for better forecast of future values for the time series under investigation.Fifthly,we present a short summary of the main aspects of the Vietnam's stock market.A brief introducing to market performance,sector,regulations,and highlights of the market in the past period 2000-2014 can give you a general overlook of its constituents,operations of the emerging market.Sixthly,we also offer some solutions for the sustainable development of Vietnam's stock market.This thesis discusses the policy recommendation for development of Vietnamese stock market.Based on the policies to develop the Vietnam stock market 2011-2020,this thesis ventures to present some measures to mitigate risks,guarantee stability and avoid big and sudden changes of the securities market and some measures to make securities market really being the channel to supply long term capitals to the enterprises,investors and the economy.Vietnam's stock market has formed and developed over 14 years but there is no market-based derivative instruments are securities to help the investors hedge price fluctuations.So,this thesis also proposes to give derivative instruments applied on Vietnam's s'tock market.Accordingly,the implementation of derivative building stock associated with the restructuring of the market organization model in the best possible scheme of the stock exchange.