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Luận văn thạc sĩ UEH management of market risk, case study of modelling volatility in vietnam stock
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MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HO CHI MINH CITY
MASTER OF BUSINESS ADMINISTRATION
MANAGEMENT OF MARKET RISK:
CASE STUDY OF MODELLING VOLATILITY
IN VIETNAM STOCK MARKET
BY
LAM VAN BAO DAN
HO CHI MINH CITY – 2012
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MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HO CHI MINH CITY
FALCULTY OF BUSINESS ADMINISTRATION
MASTER OF BUSINESS ADMINISTRATION
MANAGEMENT OF MARKET RISK:
CASE STUDY OF MODELLING VOLATILITY
IN VIETNAM STOCK MARKET
BY
LAM VAN BAO DAN
SUPERVISOR
VO XUAN VINH
2012
A thesis submitted in partial fulfillment of the requirements for
the degree of Master of Business Administration
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Master of Business Administration Lam Van Bao Dan
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CERTIFICATION
“I certify that the substance of this thesis has not already been submitted for any degree
and is not being currently submitted for any other degree.
I certify that, to the best of my knowledge, any help received in preparing this thesis,
and all sources used have been acknowledged in this thesis”
LAM VAN BAO DAN
Date: 25
th April, 2012
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Master of Business Administration Lam Van Bao Dan
K17-EMBA Page 3 2012
Abstract
The thesis concerns with market risk management. It has implications for businesses
and investors, especially those hold investment in stocks. In particular, the thesis
investigates the technique to model stock volatility in Vietnam stock market.
The rapid growth of Vietnam stock market recently has received a great attraction of
local and global investors. However, like other emerging stock markets, this growth
has accompanied with high risk. Over the past thirty years, a huge number of articles
have discussed the volatility of stock returns in developed and emerging capital
markets. Unfortunately, even though Vietnam stock market has started trading from
2000, there has been relatively little work done on modelling and forecasting the return
volatility in Vietnam stock market.
This thesis employ the GARCH type models, both symmetric and asymmetric
including ARCH (1), GARCH (1,1), GARCH-M (1,1), EGARCH (1,1) and TGARCH
(1,1) to examine the sufficient models for capturing the characteristics of the return
volatility in Vietnam stock market. The data set of VN-Index over nine year period
from March, 2002 to December, 2011 which divided into four periods including before
crisis, crisis, recovering and whole period. The findings suggest the sufficiency of
ARCH (1), GARCH (1,1) and GARCH-M (1,1) models in capturing properties of
conditional variance in Vietnam stock market. The results also provide the indicator of
the risk-reward relationship and show the weak evidence of asymmetry in the return
series in Vietnam stock market.
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Table of Contents Page
I. INTRODUCTION .............................................................................................................8
1.1 Background of the Thesis....................................................................................................8
1.2 Research Questions and Objectives..................................................................................11
1.2.1 Research Questions.............................................................................................11
1.2.2 Research Objectives and Implications...............................................................11
1.3 Vietnam Stock Market Overview.....................................................................................11
1.3.1 Introduction .........................................................................................................11
1.3.2 VN-Index.............................................................................................................16
1.4 Outline of the Thesis .........................................................................................................20
II. LITERATURE REVIEW...............................................................................................21
2.1 Volatility Definition ..........................................................................................................21
2.2 The Characteristics of Volatility in Financial Market.....................................................22
2.3 Literature Review ..............................................................................................................23
III. DATA AND METHODOLOGY...................................................................................35
3.1 Data ..................................................................................................................................35
3.2 Descriptive Statistics.........................................................................................................37
3.2.1 Histogram and Statistics Definition...................................................................37
3.2.2 Descriptive Statistics of Return Series for the Period before Crisis................39
3.2.3 Descriptive Statistics of Return Series for Crisis Period..................................40
3.2.4 Descriptive Statistics of Return Series for Recovering Period ........................41
3.2.5 Descriptive Statistics of Return Series for the Whole Period ..........................42
3.2.6 Conclusions.........................................................................................................43
3.3 Methodology ......................................................................................................................44
3.3.2 Testing for ARCH Effects..................................................................................45
3.3.3 GARCH Models..................................................................................................46
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IV. EMPIRICAL RESULTS ................................................................................................53
4.1 Testing for ARCH Effect ..................................................................................................53
4.2 Empirical Results of Different Periods ............................................................................54
4.2.1 Empirical Results of the Period before Crisis...................................................54
4.2.2 Empirical Results of the Crisis Period...............................................................57
4.2.3 Empirical Results of the Recovering Period .....................................................58
4.2.4 Empirical Results of the Whole Period of Vietnam Stock Market..................59
V. SUMMARY AND IMPLICATIONS............................................................................62
5.1 Summary and Implications ...............................................................................................62
5.2 Limitations and Recommendations for Further Research...............................................63
VI. APPENDIX.......................................................................................................................65
6.1 Appendix-1: Testing for ARCH Effect ............................................................................65
6.1.1 Before Crisis Period (From March, 2002 to December, 2007)........................65
6.1.2 Crisis Period (From January, 2008 to December, 2009)..................................66
6.1.3 Recovering Period (From January, 2010 to December, 2011).........................67
6.1.4 Whole Period (From March, 2002 to December, 2011)...................................68
6.2 Appendix-2: GARCH Models Analysis...........................................................................69
6.2.1 Before Crisis Period (From March, 2002 to December, 2007)........................69
6.2.2 Crisis Period (From January, 2008 to December, 2009)..................................74
6.2.3 Recovering Period (From January, 2010 to December, 2011).........................79
6.2.4 Whole Period (From March, 2002 to December, 2011)...................................84
REFERENCES.............................................................................................................................89
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List of Tables
Table No. Description Page
Table 1 Price limitations in HOSE over different periods 16
Table 2 Summary for estimation results of before crisis period 60
Table 3 Summary for estimation results of crisis period 60
Table 4 Summary for estimation results of recovering period 61
Table 5 Summary for estimation results of whole period 61
List of Figures
Figure No. Description Page
Figure 1 Number of listed company from 2000 to 2011 14
Figure 2 Market capitalization from 2000 to 2011 14
Figure 3 Number of securities companies from 2000 to 2011 15
Figure 4 Number of trading accounts from 2000 to 2011 15
Figure 5 Performance of VN-Index from 2000 to 2011 17
Figure 6 Performance of VN-Index in 2007 18
Figure 7 Performance of VN-Index in 2009 18
Figure 8
Histogram of daily return series of VN-Index
(01/03/2002 – 28/12/2007)
40
Figure 9
Histogram of daily return series of VN-Index
(02/01/2008 – 31/12/2009)
41
Figure 10 Histogram of daily return series of VN-Index
(04/01/2010 – 30/12/2011)
42
Figure 11 Histogram of daily return series of VN-Index
(01/03/2002 – 30/12/2011)
43
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Acknowledgement
I would like to say special thanks to my supervisor, Dr. Vo Xuan Vinh for his helpful
directions, encouragements and valuable comments in preparing this thesis.
I would like to thank all lecturers in EMBA program, especially to Dr. Tran Ha Minh
Quan for his help.
I would also like to thank all my friends in the program for supporting and encouraging
me to finish this thesis.
Finally, special thanks also go to my wife and my family for their love and staying
beside me during my study.
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Master of Business Administration Lam Van Bao Dan
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I. INTRODUCTION
1.1 Background of the Thesis
Investing in emerging stock markets can make a large return but also creates a big loss
for businesses because of high volatility (high risk). Therefore, finding a technique to
model volatility is important for businesses and investors investing in stock market.
This thesis will investigate the volatility models which best fits the Vietnam stock
market conditions. Modelling volatility will help businesses and investors understand
and better manage risks involved in their investment.
Volatility is more and more important in financial market. There are a huge number of
researches and discussions for volatility in the past thirty years and especially in the
recent years. This is because volatility is a special indicator in financial market. It is a
key factor in many securities pricing formula as well as the value-at-risk models.
Even though volatility is unobservable, it plays an important role in making investment
decision. On the other hand, it is also the interest of the policy makers in financial
markets. The policy makers are interested in the impact of volatility on the stability of
the financial market and hence on the economy.
Because of the above implications, volatility is the focus of several studies for
estimation and forecast. The volatility index (VIX) and Nasdaq Volatility Index (VXN)
that defined as a weighted of prices for a range of options on the S&P 500 index and
the Nasdaq 100 index have started trading from 2006. It is calculated in real time by
Chicago Board Option Exchange (CBOE). These are two of the world’s most popular
index of investors concerning to future stock market volatility. The goal is to estimate
the implied volatility of the stock market over the next 30 days. It is proven that the
low volatility index, the high trader confidence.
There are a lot of models that can be implied for modelling and forecasting volatility
including ARCH/GARCH models and non-GARCH models. However, ARCH model
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