he impact of the international price index on vietnam stock market

1. International Conference on Emerging Challenges: Managing to Success, 2015, 132-138
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THE IMPACT OF THE INTERNATIONAL PRICE INDEX ON VIETNAM
STOCK MARKET
Hoang Thanh Hue Ton1
, Van Duy Nguyen2
1
School of Economics and Business Management, Hong Duc University, ThanhHoa, Viet Nam
2Viet Nam Quantitative Analysis Join Stock Company, Hanoi, Vietnam
Correspondence: Hoang Thanh Hue Ton, School of Economics and Business Management, Hong
Duc University, Thanh Hoa City.Tel: 84-912249382. E-mail: tonhue78@gmail.com
ABSTRACT
Studying the association of macroeconomic factors with Vietnam Stock Market is significantly
important. Besides domestic macroeconomic factors namely inflation, exchange rate, money
supply researched by economists, other international economic aspects also influence on Vietnam
Stock Market in the current market economy period. This article aims to assess the effect of the
world gold, crude oil prices, the market value of SP500 on the value of VNINDEX during the
period of from 2008 to 2013. GJR-GARCH and ARDL models are used to evaluate the above
association upon considering the lag and shocks on the market. The article has discovered that the
international gold price does not impact on VNINDEX and the positive as well as negative shocks
have the same influence on Vietnam Stock Market.
Key words:GJR-GARCH Model, ARDL Model, VNINDEX.
1. Introduction
Vietnam Stock Market was established in 2000 firstly in Ho Chi Minh city with only two stock
codes of SAM and REE. After 5 years, in 2005 Hanoi Stock Exchange was opened. Vietnam Stock
Market has been recognized since 2005.
Studying the association of macroeconomic factors with Vietnam Stock Market will play an
important role for the Government to bring out reasionable policies, which will be the reliable
references for investors to make right investment decisions.
The security index fluctuates day by day, which is caused from external socio-economic or the
market asymetric information. As a result, evaluating the impact of all these factors will play an
important role in the market development as well as the investors’ decision making.
Literature review and studying model.
Literature review
The Fama’s theory of effective market has set up the essential theoretical basis for policy makers as
well as stock investors. Based on this theory, policy makers won’t make any change in the nature of
stock market because their policies only have an effect on the stock index. This has attracted a large
number of studies on the influence of macroeconomic factors on the stock index.
For Hong Kong Stock Market (HIS-Hang Seng Index), (Garefalakiset al. 2011) concluded that
SP500 index, international crude oil and gold prices impacted on HIS-Hang Seng Index. In which,
SP500 impacted on HIS with the lag of 1 unit and HIS (Hang Seng Index) with the lags of 1,2,3
influenced on the current HIS; crude oil and gold prices have an immediate effect on HIS.

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On India Stock Market, (Nath and Samanta2003) used Granger test to analyse that the exchange
rate and the security price impact on the market year after year; particularly, the reciprocal
enfluence in 1993 (with sig=0.03), in 2001 (with sig=0.02) and 2002 (with sig=0.07). The study
also indicated that different years with different economic situations would impact differently on
the stock market.
On Vietnam Stock Market, there have been a number of studies, namely (Thi My Dung
Nguyen2013) assess the association of macroeconomic factors on the stock price and other master
thesises also studied the impact of inflation, interest rate, money supply and exchange rate on the
stock price. Besides, the intergation of Vietnam into WTO in 2006 has made Vietnam integrate into
the world, which also has a great effect on Vietnam Stpock Market. This study won’t refer to above
macroeconomic factors, the authors only focus on the immediate and lag impact of international
prices on Vietnam Stock Market.
Studied model
Macroeconomic factors estimated based on time-series data always cointegrate with each other
through 2 periods (immediate and previous periods). As a resut, the authors aim to discover the
influence of gold, crude oil prices and SP500 index on VNIDEX in immediate and previous periods
(with the lag of i).
There have been some studies on Vietnam Stock Market, however, they only assessed the impact of
basic macroeconomic factors such as inflation, exchange rate, money supply or gold price on
VNIEDEX. Therefore, apart from considering the influence of the world gold, crude oil prices on
VNIDEX as traditional hypothesizes which is also illustrated in (Garefalakis et al. 2011) for Hong
Kong Stock Market, in order to evaluate how international macroeconomic factors impact on
VNIDEX, the authors further study the impact of SP500 on VNIDEX simultaneously with above
indices.
in which:
dependant variable: RVNINDEXt is the profit rate of VNINDEX at the time t
RVNIN
RGOLDt
RGOLDt-
RVNIND
RCRUD
RCRUD
RSP500t
RSP500t-i

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RVNINDEXt = ln(VNINDEXt /VNINDEXt-1)
RVNINDEXt-i is RVNINDEX with the lag of i
independant variable: RGOLD: the profit rate of GOLD time
RSP500: the profit rate of SP500
RCRUDE: the profit rate of CRUDE oil
all values of RGOLDt, t-i ; RSP500t, t-i ; RCRUDEt, t-i are calculated accordingly to
RVNINDEXt,t-i
Besides the models used to extimated the impact of factors on VNIDEX, the authors show the
model assessing the effect of variance in periods and the model residual (which represents the
negative shocks on the market):
2 2 2 2
0 1 1 1 1 1 1 1* .... * * .... * * * .... * *t t i t i t i t i t t i t i t ih h h u u u d u dγ δ δ γ γ ν ν− − − − − − − −= + + + + + + + + + (2)
The analyzing method
To evaluate the impact of some economic factor, traditional economists often use ARDL model
(Van Duy Nguyen, TrungKien Dao, QuangTuyen Bui 2014). For time-series data, economists in
modern studies always use ARDL model with stationary data to analyze to ensure the solidarity.
Using stationary data helps to avoid the unreal regression (Gujarati 2003). Besides assessing the
impact of factors on dependable variable, unobservable factors, especially shocks are necessary to
be estimated to analyze exactly the behavior of dependable variable. In economics, Engle developed
ARCH firstly in 1982, then he and Kroner further set up GARCH in 1995 to estimate further the
market shocks. Based on Engle estimation, Glosten, Jaganathan and Runkle (1993) estimated
positive and negative shocks in order to investigate whether there is any difference between positive
and negative shocks (called GJR-GARCH model).
In this writing, the authors combined ARDL model to GJR-GARCH model to assess the impact of
economic factors on VNIDEX and to estimate the positive and negative shocks in the studying
period. The studying model is as follows:
Yt= α0 +α1*Yt−1+α2*Yt−2 +…+αn*Yt−1 + β0*Xit+β1*Xit−1+…+ βn*Xit−n +ut (1)
2 2 2 2
0 1 1 1 1 1 1 1* .... * * .... * * * .... * *t t i t i t i t i t t i t i t ih h h u u u d u dγ δ δ γ γ ν ν− − − − − − − −= + + + + + + + + + (2)
In which: Yt and Xtstationary variables, and utwhite interference.
Yt−n and Xt−n stationary variables with lags.
ht: the model variance.
dt: dummies for positive and negative shocks.
Stationary time series is the average series with unchangeable variance and covariance at all times.
In order to test the time series stationary, Unit Root Test and ADF test are used (Gurajati 2003)
The perfect lag is the lag at which variables are modelized through the lag variables and other
variables with the same lag to get the best results. Defining the perfect lag based on selected indices
(Hansen 2013), and these indices are calculated by EViews technique.
In order to ensure the solidarity, the regression equations are satisfied the conditions for variable
redundance (which means the model does not contain redundant variables-not effect on VNIDEX).
In the equation (2), if ν coefficient is significant, the negative and positive shocks have different
effects on variance ht (TrongHoai Nguyen and et al. 2009).

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Studied results and conclusion
To describe the sample and correlation matrix
To describe statistically the data: during the period of 2008-2013, VNIDEX expressed the negative
medium value which showed the decreasing trend of stock price in general. The profit rate of other
factors showed an increasing trend, but not all the time because the smallest value of studied indices
was negative (table 1)
Table 1. The statisticaldescriptionofthe data in theperiodof 2008-2013
RCRUDE RGOLD RSP500 RVNINDEX
Medium 5.22E-05 0.000310 0.000101 -0.000416
Bighest 0.164097 0.086432 0.132022 0.046468
Smallest -0.130654 -0.098206 -0.104003 -0.048019
Source: the authors’ calculation
For the correlation matrix: RSP500 and RCRUDE variables are positively correlated to RVNIDEX,
while RGOLD is negatively correlated to RVNIDEX with the very small correlation coefficient r of
-0.002 (table2). In order to examine much more clearly the association of studied factors, the
authors use the regression technique of GJR-GARCH and OLS to estimate the impact of RSP500,
RGOLD and RCRUDE on RVNIDEX:
Table 2. The correlation matrix of variables
RVNINDEX RSP500 RGOLD RCRUDE
RVNINDEX 1
RSP500 0.011 1
RGOLD -0.002 0.024 1
RCRUDE 0.067 0.382 0.317 1
Results taken from EViews
Results of testing the stationary of time series
In order to assess the impact of the studied factors on VNIDEX and ensure the credibility of data,
the time series must be stationary (Gujarati 2003). Results of testing the time series stationary are as
follows:
Table 3. Results of testing the time series stationary
Variable
ADF testing
results
significant levels
Prob
1% 5% 10%
RVNINDEX -28.89 ü ü ü 0.000
RSP500 -30.81 ü ü ü 0.000
RGOLD -36.54 ü ü ü 0.000
RCRUDE -29.33 ü ü ü 0.000
Results taken from EViews
The results prove that all studied variable are stationary at the significant levels of 1%, 5% and
10%. Therefore, the variables satisfy the stationary condition and all variables are used to take the
regression analysis at following steps.

5. - 136 -
To define the perfect lag
When consider the impact of economic variables on the other, it is common to be aware of some
definite lag. To define the perfect lag to assess correctly the impact of studied variables on
RVNIDEX, the authors use some statistic indices with the suitable lag. The results taken from
analyzing the time series in the period of 2008-2013 are as follows (table 5):
Table 4. The results of defining the perfect lag
Lag LogL LR FPE AIC SC HQ
0 15341.15 NA 6.69e-15 -21.28682 -21.27218 -21.28136
1 15505.15 326.8582 5.45e-15 -21.49223* -21.41904* -21.46491*
2 15527.20 43.81455 5.40e-15 -21.50062 -21.36888 -21.45145
3 15541.34 28.03458 5.42e-15 -21.49805 -21.30776 -21.42701
4 15563.29 43.38571 5.37e-15* -21.50631 -21.25747 -21.41342
5 15573.05 19.21990 5.42e-15 -21.49763 -21.19025 -21.38289
6 15580.93 15.49266 5.48e-15 -21.48637 -21.12044 -21.34977
7 15591.01 19.76178 5.52e-15 -21.47816 -21.05368 -21.31970
8 15609.62 36.35901* 5.50e-15 -21.48177 -20.99874 -21.30147
Results taken fromEViews
The results prove that the studied factors have the mutual impact in two periods (the previous day
and the present day), any change in one factor leads to the change in the other. As a result, the
authors select the lag of 1 to set up the model.
The results taken from analyzing the impact of the studied factors on RVNIDEX
At first, the authors build the model to examine the impact of the factors on RVNIDEX and then
estimate the market shocks.
Table 5. The results taken from estimating the impact of the factors on RVNINDEX
RGDP
β S.E Prob
C -0.0004 0,00035 0,2294
RVNINDEX(-1) 0.2249 0,0252 0,0000
RGOLD - - -
RCRUDE - - -
RSP500 0.0585 0,0239 0,0145
RGOLD(-1) - - -
RCRUDE(-1) 0.0437 0,0173 0,0115
RSP500(-1) 0.2309 0,0297 0,0000
R2 16.16%
Prob(F-s) 0.000
Significancelevel 5%
ResultstakenfromEViews.
Table 6. The resultstakenfromestimating the marketshocks

6. - 137 -
ht
β S.E Prob
C 1.52E
-05 2.89E
-06 0.0000
2
1tu −
0.1311 0.0299 0.0000
2
1 1*t tu d− −
0.0518 0.0367 0.1584
ht-1 0.7761 0.3186 0.0000
Prob(F-s) 0.000
Significancelevel 5%
ResultstakenfromEViews.
In order to guarantee the estimatedresults, the authors test someregressionhypothesises. The
testingillustratedthat the models do not contain the change deviation variance defect (table 7). This
determinesthat the estimatedresults are reliable.
Table 7. The estimatedresults
Test
Prob
The change deviation variance
0.9349
Significancelevel
5%
ResultstakenfromEViews.
Besides, itis able to base on the residualchart to evaluatewhether the model issolid or not. The
residualhaving the standard distribution meansthat the model does not containanydetect.
Chart 1. The bellresidual distributionchart
Through the bellresidual distribution chartwith the standard distribution, itisclearthat the model
iscompletelysolidarity.
The regressionequationisformed as follows : RVNINDEX = -0,00042 + 0,058589097827*RSP500
+ 0,2249*RVNINDEX(-1) + 0,0437*RCRUDE(-1) + 0,2309*RSP500(-1) (*)
The shockestimating model: ht = 1.52e-05 + 0.1311* 2
1tu − + 0.0518* 2
1 1*t tu d− − + 0.7761* ht-1
(**)

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The result shows that RSP500 influences immediately on RVNIDEX with the same positive
direction. The previous RVNIDEX, RCRUDE, RSP500 also impact on RVNIDEX with the same
direction.
For the shocksestimatedthrough the residual value at the previous stage and the variance at the
previous stage of 1 unit. Besides, the negative or positive shocks impact equally on the market due
to the factthatP_value of the variance estimation is 0.158 largerthan 0.05 (with the significance of
5%). As a result, itisclearthat the market information isdefined by shocks (variance) which are
expressedthrough the information value at the 1-time-unit previous stage, and both positive and
negative information only influence on the market in one period of time (1 day).
Conclusion
The statistcallyexperimentresults in the period of 2008-2013 illustratesthat the profit rate of
international values shows an increasing trend (the medium value isat the positive level), while the
profit rate of VNIDEX shows a decreasing trend with the negative medium value of -0.000416. The
world economyfellintorecessionduring the studying time which leads studiedeconomic indices to
beevaluatedat a lowerprice to prevent the economyfrom more worsening.
The equation (*) shows that VNIDEX depends on the previous stage VNIDEX, whichmeansthat the
stock price of the previous stage increasedwould cause the present stock price to increase and vice
versa. Accordingly for CRUDE price, the crudeprice impacts on VNIDEX with the same direction
at 1 lag. Only SP500 impacts on VNIDEX at the immediate stage and the previous stage (the lag of
1).
It isprovedthat the information of CRUDE and SP500 are spreaded on one unit of time (daily).
Besidesabovefactors, unobservable information isestimated by the model (**).
Vietnam Stock Marketisdifferentfrom Hong Kong Stock Market. In (Garefalakis, et al. 2011)
examined Hong Kong Stock Market and concludedthat the factorsimpacted on the marketinclude
the Stock price index on the marketwith the lag of 1, 2 and 3, the SP500 index at the previousperiod
(with the lag of 1), the Crude and Gold prices have an immediateeffect on the market. This is due
to the factthat Hong Kong marketismuch more developedthan Vietnam Stock Market.
The equation (**) provesthat the market information defined by shocks (variance) is the
information at the 1-time-unit previous stage and whether the good or bad information has an
specific influence on the market in 1 stage of time (1 day).
However, thereissomesimilarities in the impact of shocksbetween Vietnam market and Hong Kong
marketwhen the impact of shocks on bothmarket are at the lag of 1. The nature of the impact of
bothnegative and positive shocksis the same on both Hong Kong and Vietnam Markets (P_values
of bothshocks are higherthan 0.05).
Suggestion
The impact of the Crudeprice, SP500 index and the VNIDEX at the one-day-previous stage on the
next-day VNIDEX plays an important role in the investors’ decisionmaking. The factors influence
on VNIDEX after one daywith the same direction which causes the investors to make the
mostvaluabledecision.
As one out of above indices increasestoday, the investors are able to forecast the nex-day VNIDEX
increase and vice versa.
Besides the impact of the factorsat the previous stage (the lag of 1), the studyillustrates the
immediate influence of SP500, therefore the impact of SP500 endures from the previousday to the
presentday.

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SP500 influences VNIDEX at the previous and current stages gives out someadvice to the
investorsthatbesidesabove indices, theyshouldpayspecial attention to SP500 to takeadvantage of
SP500.
In general, the study examines both the positive and negativeeffects of the one-day-previousshocks
on Vietnam Stock Market and shows thattheseeffects last one daysince the shocks break out. As a
result, in order to respond to the shocks, the investorsneed to estimate the effect of the shocks to
make a right decision for the nextday.
Acknowledgments
This work was supported in part by grants from the Innovation Program of Shanghai Municipal
Education Commission (No. 13ZS065), the Shanghai Philosophy and Social Science Planning
Project (No. 2012BGL006), and the National Social Science Foundation of China (No. 13CGL057).
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