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30/11/2022
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Tran, T. V. A., Dao, T., & Nguyen, T. N. (2022). Interdependence of stock markets: evidence from Vietnam. Journal of International Economics and Management, 22(3), 110-128. https://doi.org/10.38203/jiem.022.3.0056
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Interdependence of stock markets: evidence from Vietnam
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Abstract
The study investigates the effect of spillovers regionally and worldwide on Vietnam’s stock market. The vector error correction model (VECM) is used to analyze the collected data from Bloomberg. Data include eight comparable stock market indices, namely DJI, NKY, SHCOMP, SET, MXSG, PCOMP, FBMKLCI, and JCI. The empirical results show that the Vietnamese stock market is significantly linked to that of the other countries. During the periods of dramatic market fluctuation, the cross-border linkage between the VN-Index and comparable indices is the largest. The impact of the stock markets of small nearby countries such as Singapore and Malaysia on the Vietnamese stock market are greater than the other large ones including the United States, Japan and China. The findings of this study contribute to the literature on the interdependence and interaction of stock markets. The common economic integration, especially in showing that effect found in other studies, is meaningful in explaining the observed phenomenon.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Keywords
Interdependence, Spillover effect, Price co-movement, Cross-border relationship, ASEAN exchanges, Stock market indices
References
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Bessler, D.A. and Yang, J. (2003), “The structure of interdependence in international stock markets”, Journal of International Money and Finance, Vol. 22 No. 2,pp. 261 - 287.
Boako, G., Alagidede, I.P., Sjo, B. and Uddin, G.S. (2020), “Commodities price cycles and their interdependence with equity markets”, Energy Economics, Vol. 91, 104884.
Champagne, C.C., Coggins, F. and Sodjahin, A. (2017), “Corporate bond market interdependence: credit spread correlation between and within US and Canadian corporate bond markets“, North American Journal of Economics and Finance, Vol. 41, pp. 1 - 17.
Chong, T.T., Wing-Keung, W. and Juan, Z. (2011), “A gravity analysis of international stock market linkages”, Applied Economics Letters, Vol. 18 No. 14, pp. 1315 - 1319.
Choudhry, T. (1997), “Stochastic trends in stock prices: evidence from Latin American markets”, Journal of Macroeconomics, Vol. 19 No. 2, pp. 285 - 304.
Christofi, A.C. and Pericli, A.N. (1999), “Correlation in price changes and volatility of major Latin American stock markets”, Journal of Multinational Financial Management, Vol. 9 No. 1, pp. 79 - 93.
Chuang, I., Jin-Ray, L. and Keshin, T. (2007), “Interdependence of international equity variances: evidence from East Asian markets”, Emerging Markets Review, Vol. 8 No. 4, pp. 311 - 327.
Collins, D. and Abrahamson, M. (2004), “African equity markets and the process of global financial integration”, African Journal of Economics, Vol. 72 No. 4, pp. 658 - 683.
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Diebold, F.X. and Yilmaz, K. (2009), “Measuring financial asset return and volatility spillovers, with application to global equity markets”, The Economic Journal, Vol. 119 No. 534, pp. 158 - 171.
Diebold, F.X. and Yilmaz, K. (2012), “Better to give than to receive: predictive directional measurement of volatility spillovers”, International Journal of Forecasting, Vol. 28 No. 1, pp. 57 - 66.
Jung, R. and Maderitsch, R. (2014), “Structural breaks in volatility spillovers between international financial markets: contagion or mere interdependence?”, Journal of Banking & Finance, Vol. 47, pp. 331 - 342.
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Elyas, E., Priyal, P. and Tribhuvan, N.P. (1998), “Interdependence and dynamic linkages between stock markets of Sri Lanka and its trading partners”, Journal of Multinational Financial Management, Vol. 8 No. 1, pp. 89 - 101.
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Jinjarak, Y. and Zheng, H. (2014), “Granular institutional investors and global market interdependence”, Journal of International Money and Finance, Vol. 46, pp. 61 - 81.
Kim, J.H. (2003), “Integration and interdependence of stock and foreign exchange markets: an Australian perspective”, Journal of International Financial Markets Institutions and Money, Vol. 13 No. 3, pp. 237 - 254.
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Narayan, S. and Rehman, M.U. (2017), “Diversification opportunities between emerging and frontier Asian (EFA) and developed stock markets”, Finance Research Letters, Vol. 23, pp. 223 - 232.
Narayan, S. and Rehman, M.U. (2018), “Portfolio diversification opportunities within emerging and frontier stock markets: evidence from ten Asian countries”, Bulletin of Monetary Economics and Banking, Vol. 21 No. 1, pp. 1 - 22.
Narayan, S. and Rehman, M.U. (2020), “International portfolio strategies and opportunities: the case of the US, Japan and Asia”, Finance Research Letters, Vol. 37, pp. 1013 - 1058.
Nguyen, T. (2011), “US macroeconomic news spillover effects on Vietnamese stock market”, Journal of Risk Finance, Vol. 12 No. 5, pp. 389 - 399.
Pretorius, E. (2001), “Economic determinants of emerging stock market interdependence”, Emerging Markets Review, Vol. 3 No. 1, pp. 84 - 105.
Samarakoon, L.P. (2011), “Stock market interdependence, contagion, and the US financial crisis: the case of emerging and frontier markets”, Journal of International Financial Markets, Institutions and Money, Vol. 21 No. 5, pp. 724 - 742.
Sanvi, A.-D. and Neto, D. (2004), “Equity market interdependence: the relationship between European and US stock markets”, Financial Stability Review, Vol. 4, pp. 108 - 126.
Sugimoto, K., Matsuki, T. and Yoshida, Y. (2014), “The global financial crisis: an analysis of the spillover effects on African stock markets”, Emerging Markets Review, Vol. 21, pp. 201 - 233.
Syed, S., Safwan, N., Mensie, W. and Kumarg, R. (2017), “Examining the efficiency and interdependence of US credit and stock markets through MF-DFA and MF-DXA approaches”, Physica A: Statistical Mechanics and its Applications Supports, Vol. 471, pp. 351 - 363.
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Tam, S.P. (2014), “A spatial–temporal analysis of east Asian equity market linkages”, Journal of Comparative Economics, Vol. 42 No. 2, pp. 104 - 327.
Tavares, J. (2009), “Economic integration and the co-movement of stock returns”, Economics Letters, Vol. 103 No. 2, pp. 65 - 67.
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Touny, M.A. (2012), “Stock market development and economic growth: empirical evidence from some Arab countries”, Arab Journal of Administration, Vol. 32 No. 1, pp. 1 - 28.
Wallerstein, I. (2004), World-systems analysis: an introduction, Duke University Press, Durham.
Walti, S. (2011), “Stock market synchronization and monetary integration”, Journal of International Money and Finance, Vol. 30 No. 1, pp. 96 - 110.
Xiao, J.C., Tian, S., Yuan, N. and Hamori, S. (2017), “Interdependence between oil and East Asian stock markets: evidence from wavelet coherence analysis”, Journal of International Financial Markets, Institutions and Money, Vol. 48, pp. 206 - 223.
Yang, J., Kolari, J.W. and Insik, M. (2003), “Stock market integration and financial crises: the case of Asia”, Applied Financial Economics, Vol. 13 No. 7, pp. 477 - 486.
Yiu, M.S., Wai-Yip, A.H. and Daniel, F.C. (2010), “Dynamic correlation analysis of financial contagion in Asian markets in global financial turmoil”, Applied Financial Economics, Vol. 20 No. 4, pp. 345 - 354.
Zhang, X., Xiaolong, Z. and Daniel, D.Z. (2016), “The dynamic interdependence of international financial markets: an empirical study on twenty-seven stock markets”, Physica A: Statistical Mechanics and its Applications, Vol. 472, pp. 32 - 42.
Ahmed, A.D. and Rui, H. (2018), “China-Africa financial markets linkages: volatility and interdependence”, Journal of Policy Modeling, Vol. 40 No. 6, pp. 1140 - 1164.
Aityan, S.K., Ivanov-Schitz, A.K. and Izotov, S.S. (2010), “Time-shift asymmetric correlation analysis of global stock markets”, Journal of International Financial Markets, Institutions and Money, Vol. 20 No. 5, pp. 590 - 605.
Baele, L. and Inghelbrecht, K. (2010), “Time-varying Integration: interdependence and contagion”, Journal of International Money and Finance, Vol. 29 No. 5, pp. 791 - 818.
Bekaert, G. and Harvey, C.R (1997), “Emerging equity market volatility”, Journal of Financial Economics, Vol. 43 No. 1, pp. 29 - 77.
Bessler, D.A. and Yang, J. (2003), “The structure of interdependence in international stock markets”, Journal of International Money and Finance, Vol. 22 No. 2,pp. 261 - 287.
Boako, G., Alagidede, I.P., Sjo, B. and Uddin, G.S. (2020), “Commodities price cycles and their interdependence with equity markets”, Energy Economics, Vol. 91, 104884.
Champagne, C.C., Coggins, F. and Sodjahin, A. (2017), “Corporate bond market interdependence: credit spread correlation between and within US and Canadian corporate bond markets“, North American Journal of Economics and Finance, Vol. 41, pp. 1 - 17.
Chong, T.T., Wing-Keung, W. and Juan, Z. (2011), “A gravity analysis of international stock market linkages”, Applied Economics Letters, Vol. 18 No. 14, pp. 1315 - 1319.
Choudhry, T. (1997), “Stochastic trends in stock prices: evidence from Latin American markets”, Journal of Macroeconomics, Vol. 19 No. 2, pp. 285 - 304.
Christofi, A.C. and Pericli, A.N. (1999), “Correlation in price changes and volatility of major Latin American stock markets”, Journal of Multinational Financial Management, Vol. 9 No. 1, pp. 79 - 93.
Chuang, I., Jin-Ray, L. and Keshin, T. (2007), “Interdependence of international equity variances: evidence from East Asian markets”, Emerging Markets Review, Vol. 8 No. 4, pp. 311 - 327.
Collins, D. and Abrahamson, M. (2004), “African equity markets and the process of global financial integration”, African Journal of Economics, Vol. 72 No. 4, pp. 658 - 683.
Corsettia, G., Pericolib, M. and Sbraciab, M. (2005), “Some contagion, some interdependence: more pitfalls in tests of financial contagion”, Journal of International Money and Finance, Vol. 24 No. 8, pp. 1177 - 1199.
Dang, V.D. (2010), “Understanding behaviorial finance in Vietnam’s stock market”, Review of Finance, Available at https://tapchitaichinh.vn/nghien-cuu--trao-doi/trao-doi-binh-luan/lythuyet-tai-chinh-hanh-vi-tren-thi-truong-chung-khoan-viet-nam-106663.html (Accessed 25 April, 2020).
Dao, T.H. (2021), “Determinants of linkages between foreign direct investment firms and domestic firms in Vietnam”, International Journal of Advanced and Applied Sciences, Vol. 8 No. 6, pp. 94 - 102.
Diebold, F.X. and Yilmaz, K. (2009), “Measuring financial asset return and volatility spillovers, with application to global equity markets”, The Economic Journal, Vol. 119 No. 534, pp. 158 - 171.
Diebold, F.X. and Yilmaz, K. (2012), “Better to give than to receive: predictive directional measurement of volatility spillovers”, International Journal of Forecasting, Vol. 28 No. 1, pp. 57 - 66.
Jung, R. and Maderitsch, R. (2014), “Structural breaks in volatility spillovers between international financial markets: contagion or mere interdependence?”, Journal of Banking & Finance, Vol. 47, pp. 331 - 342.
Eckel, S., Gunter L., Alina M. and Volker, S. (2011), “Measuring the effects of geographical distance on stock market correlation”, Journal of Empirical Finance, Vol. 18 No. 2, pp. 237 - 247.
Egert, B. and Kocenda, E. (2007), “Interdependence between Eastern and Western European stock markets: evidence from intraday data”, Economic Systems, Vol. 31 No. 2, pp.184 - 203.
Elyas, E., Priyal, P. and Tribhuvan, N.P. (1998), “Interdependence and dynamic linkages between stock markets of Sri Lanka and its trading partners”, Journal of Multinational Financial Management, Vol. 8 No. 1, pp. 89 - 101.
Fernandez-Diaz, J. and Morley, B. (2019), “Interdependence among agricultural commodity markets, macroeconomic factors, crude oil and commodity index”, Journal of Research in International Business and Finance, Vol. 47, pp. 174 - 194.
Forbes, K.J. and Rigobon, R. (2002), “No contagion, only interdependence: measuring stock market comovements”, The Journal of Finance, Vol. 57 No. 5, pp. 2223 - 2261.
Ginanjar, D., Rumi, M. and Masih, A.M.M. (2016), “Contagion and interdependence across AsiaPacific equity markets: an analysis based on multi-horizon discrete and continuous wavelet transformations”, International Review of Economics and Finance, Vol. 43, pp. 363 - 377.
He, H., Chen, S., Yao, S. and Ou, J. (2014), “Financial liberalisation and international market interdependence: evidence from China’s stock market in the post-WTO accession period”, Journal of International Financial Markets, Institutions & Money, Vol. 33, pp. 434 - 444.
Jinjarak, Y. and Zheng, H. (2014), “Granular institutional investors and global market interdependence”, Journal of International Money and Finance, Vol. 46, pp. 61 - 81.
Kim, J.H. (2003), “Integration and interdependence of stock and foreign exchange markets: an Australian perspective”, Journal of International Financial Markets Institutions and Money, Vol. 13 No. 3, pp. 237 - 254.
Liu, L. (2013), “International stock market interdependence: are developing markets the same as developed markets?”, Journal of International Financial Markets, Institutions & Money, Vol. 26, pp. 226 - 238.
Mian, S.N., Muhammad M.N. and Usman, G. (2010), “Relationship between economic growth and stock market development”, Journal of Business Management, Vol. 4, pp. 3473 - 3479.
Mohammad, A., Adnan T.A. and Ebrahim, M. (2018), “The relationship between economic growth and stock market”, International Journal of Advances in Management and Economics, Vol. 7 No. 5, pp. 1 - 8.
Narayan, S. and Rehman, M.U. (2017), “Diversification opportunities between emerging and frontier Asian (EFA) and developed stock markets”, Finance Research Letters, Vol. 23, pp. 223 - 232.
Narayan, S. and Rehman, M.U. (2018), “Portfolio diversification opportunities within emerging and frontier stock markets: evidence from ten Asian countries”, Bulletin of Monetary Economics and Banking, Vol. 21 No. 1, pp. 1 - 22.
Narayan, S. and Rehman, M.U. (2020), “International portfolio strategies and opportunities: the case of the US, Japan and Asia”, Finance Research Letters, Vol. 37, pp. 1013 - 1058.
Nguyen, T. (2011), “US macroeconomic news spillover effects on Vietnamese stock market”, Journal of Risk Finance, Vol. 12 No. 5, pp. 389 - 399.
Pretorius, E. (2001), “Economic determinants of emerging stock market interdependence”, Emerging Markets Review, Vol. 3 No. 1, pp. 84 - 105.
Samarakoon, L.P. (2011), “Stock market interdependence, contagion, and the US financial crisis: the case of emerging and frontier markets”, Journal of International Financial Markets, Institutions and Money, Vol. 21 No. 5, pp. 724 - 742.
Sanvi, A.-D. and Neto, D. (2004), “Equity market interdependence: the relationship between European and US stock markets”, Financial Stability Review, Vol. 4, pp. 108 - 126.
Sugimoto, K., Matsuki, T. and Yoshida, Y. (2014), “The global financial crisis: an analysis of the spillover effects on African stock markets”, Emerging Markets Review, Vol. 21, pp. 201 - 233.
Syed, S., Safwan, N., Mensie, W. and Kumarg, R. (2017), “Examining the efficiency and interdependence of US credit and stock markets through MF-DFA and MF-DXA approaches”, Physica A: Statistical Mechanics and its Applications Supports, Vol. 471, pp. 351 - 363.
Ta, T.B. (2020), “Vietnam stock market: open future”, Review of Finance, Available at https://tapchitaichinh.vn/kinh-te-vi-mo/thi-truong-chung-khoan-viet-nam-tuong-lai-rongmo-326926.html (Accessed 20 June, 2021).
Tam, S.P. (2014), “A spatial–temporal analysis of east Asian equity market linkages”, Journal of Comparative Economics, Vol. 42 No. 2, pp. 104 - 327.
Tavares, J. (2009), “Economic integration and the co-movement of stock returns”, Economics Letters, Vol. 103 No. 2, pp. 65 - 67.
The World Bank. (2021), “Vietnam trade”, Available at https://wits.worldbank.org/CountrySnapshot/en/VNM (Accessed 23 October, 2021).
Touny, M.A. (2012), “Stock market development and economic growth: empirical evidence from some Arab countries”, Arab Journal of Administration, Vol. 32 No. 1, pp. 1 - 28.
Wallerstein, I. (2004), World-systems analysis: an introduction, Duke University Press, Durham.
Walti, S. (2011), “Stock market synchronization and monetary integration”, Journal of International Money and Finance, Vol. 30 No. 1, pp. 96 - 110.
Xiao, J.C., Tian, S., Yuan, N. and Hamori, S. (2017), “Interdependence between oil and East Asian stock markets: evidence from wavelet coherence analysis”, Journal of International Financial Markets, Institutions and Money, Vol. 48, pp. 206 - 223.
Yang, J., Kolari, J.W. and Insik, M. (2003), “Stock market integration and financial crises: the case of Asia”, Applied Financial Economics, Vol. 13 No. 7, pp. 477 - 486.
Yiu, M.S., Wai-Yip, A.H. and Daniel, F.C. (2010), “Dynamic correlation analysis of financial contagion in Asian markets in global financial turmoil”, Applied Financial Economics, Vol. 20 No. 4, pp. 345 - 354.
Zhang, X., Xiaolong, Z. and Daniel, D.Z. (2016), “The dynamic interdependence of international financial markets: an empirical study on twenty-seven stock markets”, Physica A: Statistical Mechanics and its Applications, Vol. 472, pp. 32 - 42.