The 36th WORKSHOP
Recently, the stock market in Vietnam has been a popular topic to be discussed at different levels with different research purposes. Along with impressive economic growth, the rapid growth of the Vietnamese stock market has also emerged to thousands of domestic and foreign investors. To manage the market so as to promote further investments for the economy, the Vietnamese government has conducted a number of policies. Being interested in whether such policies had significant influences on the volatility of the stock rates of return, Mr. Vuong Thanh Long - an expert of the Bank for Investment and Development of Vietnam (BIDV) - conducted a research on this topic, and he would like to share the findings in our September workshop.
Mr. Long began his presentation with basic rationales of the research. According to him, along with rapid financial liberalization process in Vietnam, the stock market in Vietnam, though premature, had attracted a dramatically increasing number of individual and institutional investors inside and outside Vietnam. The swift growth of the stock market was due to some such important factors as the presence of giant foreign investors, the potentially high growth of the Vietnamese economy, and a huge flow of oversea remittances. However, the presenter also showed that the stock return was not stable for any extended period, and the market had experienced some recession and recovery periods. Under such context, Mr. Long was interested in answering the following questions: (1) the characteristics of stock return volatility; (2) how robust were the characteristics of volatility when regime changes were considered; and (3) how financial liberalization process or other economic/political events affected the stock return volatility.
Before discussing the empirical estimates, Mr. Long made a brief overview of previous studies on financial liberalization and stock market management with a focus on analytical frameworks. For instance, to capture volatility, Engle (1982) proposed a class of autoregressive conditional heteroskedasticity (ARCH), and then Bollerslev (1986) developed a generalized ARCH (or GARCH) model. Regarding stock markets, Susmel (2000) and Malik et al. (2005) provided evidences of highly persistent volatility in stock market return. In his research, Mr. Long also applied an ARCH / GARCH model to test hypotheses on the stock return volatility in the Vietnamese stock market. He used the closing market index value (VNindex) in the period July 2000-May 2007 to estimate the daily rates of return. To show the policy impacts on the stock return rates during the study period, Mr. Long listed such important events as the launch of the Vietnamese stock market, the Ninth Congress with some policy directions for further financial liberalization, or the allowances to foreign investors to buy up to 30 percent of the stock value of the privatized firms.
[For further details of the model, data, assumptions, and estimates, please refer to the authorfs paper and presentation attached at the end of this summary]
Prof. Kenichi Ohno (GRIPS & VDF) ignited the discussion session by some comments on the literature review of the research. According to him, McKinnon (1973) did not mention about stock markets; instead, he argued that the domestic financial market (basically domestic banks) should be liberalized, along with tax and tariff reforms. And thus, Prof. Ohno asked Mr. Long to provide more analysis on this view. Also mentioned the analysis on the previous studies, Mr. Vu Tuan Khai (YNU & VDF-Tokyo) asked Mr. Long to check the argument of the Keynesian economists on the financial liberalization. In his response, Mr. Long said that he would revise the way of emphasizing these arguments, so as to make them clearer to the readers.
Regarding the empirical model, Prof. Ohno was concerned about the dummy variables used to evaluate the policy impacts. He argued that one-time change in policy decision might not have significant influences on the stock market because of a variety of unexpected and unexplainable variables. Further, whether the chosen dummy variables were really related to the changes of the marker was another concern. At a broader view, Prof. Ohno also questioned on how much the stock market in Vietnam was integrated with the global stock market. He also recommended that the author consider the impacts of individual and macroeconomic factors on the volatility of the stock return, as these factors were obviously different. Mr. Long thanked Prof. Ohno for these insightful comments, and he said that other findings of the research would be added up by taking these issues into the model in the subsequent research.
Based on the above comments of Prof. Ohno, Mr. Nguyen Dinh Phong (YNU) also suggested Mr. Long decompose the volatility of stock rates of return in terms of local and global impacts. Mr. Phong guessed that local impacts would be substantial, since the stock market in Vietnam was still premature with small trading volumes in comparison with other regional markets.
Also being concerned with policy changes, Mr. Khai would like to know how the presence of foreign investors would change the market once new policies toward these investors were implemented. Moreover, he emphasized that expectation would be extremely important factor in the stock market, and as such, whether expectation could be integrated into the model. In his answer, Mr. Long said that the foreign investors would become an important factor in the development of the stock market in Vietnam, as more and more individual and institutional foreign investors were coming to Vietnam. For the latter question, Mr. Long acknowledged that expectation was important, but it was not considered in the current research.
In addition to the above comments, Mr. Vu Hoang Nam (GRIPS & VDF-Tokyo) discussed some implications of the findings, such as the meaning of stability and volatility, and how the magnitudes of these indicators would indicate policy influences on the stock return. Making complementary comments on the policy implications, Prof. Ohno said that the policy suggestions of the presentation were not really related to the findings, and it seemed difficult to obtain stable market and high rates of return at the same time.
From the USA, Mr. Nguyen Huy Hoang (on-leave lecturer of National Economics University, Hanoi) questioned about data availability for the stock market in Vietnam, and whether firms in Vietnam did stock splits or offered stock dividend would influence stock return if there were no adjustments for the data. In responding these questions, Mr. Long showed that data were provided by various but consistent sources, so that he could get good data for the empirical model. For the latter questions, Mr. Long agreed that firms did stock splits or offered stock dividend for some reasons, but the VNindex was computed as a weighted index representing the changes in price of the overall stocks present in the HCM Securities Trading Center, so that in such the cases as some firms joined or withdrew from stock market, or did stock splits, VNindex would not be affected.
At the end of the presentation, Mr. Long thanked all participants for their comments and suggestions on the research. He said that further studies on the topic would be conducted with more updated data and suggested variables and events.
At the end of the workshop, we had an informal meeting. Various policy issues in Vietnam were disseminated and discussed. We informed the participants about the Vietnamese Symposium on Economics and Technology 2007 (VSET2007), which would be held on Saturday, October 13, 2007 at GRIPS. Also, in the 37th VDF-Tokyo workshop on October 20, 2007, we will welcome Mr. Tran Viet Ha from Kyoto University to present his findings on the stock market in Vietnam with a different approach.
(By Giang Thanh Long)
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