RELATIONSHIP BETWEEN STOCK RETURN AND MACROECONOMIC VARIABLES IN VIETNAMESE STOCK MARKET - AN APPLICATION OF VAR AND VECM

Abstract

This study examines the long-run equilibrium relationships and the short-run dynamic adjustment between four of domestic macroeconomic variables and stock returns of Vietnamese stock market. The macroeconomic variables analyzed are interest rate, inflation rate, exchange rate, and the industrial productivity using monthly observations from September 2000 through December 2006. In addition, the relationship of Vietnam index with Chinese index is examined. The approaches applied in this paper are co-integration test, variance decomposition and impulse response function. Econometric results support the existence of long-run equilibrium relationships between the macroeconomic variables and the Vietnamese stock market. The short-run dynamic adjustment between macroeconomic variables and Vietnamese Stock market is weak and statistically insignificant based on empirical results. Empirical results support that Chinese Stock market index is the main driven of Vietnamese Stock Market.