Impacts of the Global Financial Crisis on an emerging market : the case of Vietnam

Abstract

The purpose of the thesis is to investigate the extent to which the GFC has affected the Vietnamese equity markets and its linkages to global equity markets. Despite the significant growth in market capitalization over the last 10 years, studies on the Vietnamese equity market are sparse in the existing literature and there is a lack of research taking into account the influence of the GFC on the market as well as on its cross-market linkages. Specifically therefore, the thesis examines impacts of the GFC on the Vietnamese equity market at market levels and on its linkages - including both short-run and long-run linkages - to global markets. The linkages are based on two foundational theories; namely Purchasing Power Parity Theory and the Modern Portfolio Theory that are commonly discussed in the literature. Also examined is whether a shock from the GFC spread to the Vietnamese equity market, and if so, how and where the shock originated. To answer these issues, the thesis employs nine equity-market indices - Hong Kong, Japan, Korea, Singapore, Taiwan, the US, Malaysia, Thailand and Vietnam. These countries are selected foe the fact that they have continuously maintained leading positions in the FDI flows of Vietnam in recent years. The period of study is from 28/7/2000 to 31/12/2010; the start date being the first trading day of the Vietnamese equity market. The markets are separated into two groups, namely advanced markets (Hong Kong, Korea, Japan, Singapore, Taiwan and the US) and emerging markets (Malaysia, Thailand and Vietnam). Three main groups of empirical testing models are used to explore the impacts of the GFC on the Vietnamese equity markets. Firstly, co-integration tests are used to examine the long-run linkages between and among the markets. Second, causality tests are used to explore the causal or short-run linkages. Finally, the contagion effect is investigated by employing constant and dynamic conditional correlation tests. In these tests, the pre- and post-analysis technique is performed to examine the impacts of the GFC during sub-periods. The empirical results of the thesis find much evidence in favour of the co-integration relationship between Vietnam and other markets during the entire sample and sub-periods - for example, the co-movement of Vietnam-Hong Kong, Japan-US during the entire period; and Vietnam-Japan, Vietnam-Taiwan during the pre-crisis period. However, the results overall are not consistent among the three bivariate co-integrating tests employed in the thesis. Long-run co-movements are also evident in the relationships within the entire market, but not within the three emerging markets of Vietnam, Thailand and Malaysia. The empirical findings on the contagion effect are found in the relationships between the Vietnamese and other markets. The constant conditional correlation reveals that during the pre-crisis period, the highest correlation is found between Vietnam and Japan; however, after the crisis, it switches to the relationship between the US and Vietnam. In addition, among the markets, Japan is considered the first market influenced by the GFC because it has the highest correlation with the US. The dynamic conditional correlation also highlights the transmission of the GFC to the entire market. Among these markets, Hong Kong and Singapore are found to play important roles in transmitting the shock of the subprime mortgage crisis from the US to the other markets during the pre-crisis period; however, Japan is found to play this role during the crisis period. The results also indicate a significant shock to the Vietnamese equity market during the crisis period.

Date of Award	2013
Original language	English