Luận văn thạc sĩ UEH return and volatility spillovers vietnamese and some asian markets

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HOCHIMINH CITY

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NGUYỄN VĨNH NGHIÊM

RETURN AND VOLATILITY SPILLOVERS

VIETNAMESE AND SOME ASIAN MARKETS

MAJOR: BUSINESS ADMINISTRATION

MAJOR CODE: 60.34.05

MASTER THESIS

SUPERVISOR: Dr. VÕ XUÂN VINH

HO CHI MINH CITY, 2012

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i

Acknowledgement

Foremost, I would like to express my sincere gratitude to my advisor Dr. Võ

Xuân Vinh for the continuous support of my thesis, for his patience, motivation,

enthusiasm, and immense knowledge. His guidance helped me in all the time of

research and writing of this thesis.

I would like to thank professors at Faculty of Business Administration and

Postgraduate Faculty, University of Economics Ho Chi Minh City for their

teaching, their guidance and support during my MBA course.

I wish to thank my family for the love, support and constant encouragement I

have got over the years.

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ii

Abstract

Purpose - This thesis investigates the interdependence between the Vietnamese

stock market and other nine Asian markets in terms of return and volatility

spillovers during three periods: pre-crisis, crisis and post-crisis.

Methodology - Long run and short run integration are examined through

Johansen cointegration and Granger causality test respectively. Vector

autoregressive model is used to estimate the conditional return spillover among

these indices. Volatility spillover is studied through BEKK and AR-GARCH

Model.

Findings - We find evidence of the integration of Vietnamese market with

statically significant correlation, cointegration, return spillover and volatility

spillover with other markets. The crisis has strong impacts to market

interdependence with higher correlation, cointegration and spillovers. In the

current period, there may be long run benefits from portfolio diversification to

Vietnamese stocks.

Originality/Value - The thesis points out the return and volatility between

Vietnamese stock market and other nine Asian Markets and suggests potential

benefits from diversification.

Key words - Return spillover, Volatility spillover, VAR, BEKK, VAR-GARCH,

Cointegration, Granger causality.

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iii

Contents

Acknowledgement .............................................................................................................i

Abstract.............................................................................................................................ii

Contents...........................................................................................................................iii

List of Figures................................................................................................................... v

List of Tables................................................................................................................... vi

Chapter 1. Introduction................................................................................................. 1

1.1. Background ........................................................................................................ 1

1.2. Purpose and scope .............................................................................................. 1

1.3. Basic definition .................................................................................................. 3

1.3.1. Stock index ................................................................................................. 3

1.3.2. Return.......................................................................................................... 3

1.3.3. Volatility ..................................................................................................... 4

1.3.4. Return spillover........................................................................................... 4

1.3.5. Volatility spillover...................................................................................... 4

1.3.6. Time series.................................................................................................. 4

1.3.7. Cointegration .............................................................................................. 5

1.3.8. Granger causality ........................................................................................ 5

1.4. Research questions............................................................................................. 5

1.5. Structure ............................................................................................................. 6

Chapter 2. Literature review......................................................................................... 7

Chapter 3. Methodology............................................................................................. 12

3.1. Data .................................................................................................................. 12

3.2. The model and methods................................................................................... 12

3.2.1. Introduction............................................................................................... 12

3.2.2. Unit root and stationary test...................................................................... 13

3.2.3. Johansen’s cointegration techniques......................................................... 14

3.2.4. Granger causality analysis........................................................................ 16

3.2.5. VAR Model............................................................................................... 18

3.2.6. Bivariate BEKK Model ............................................................................ 18

3.2.7. GARCH Model......................................................................................... 20

Chapter 4. Data Description, Results and Analysis of Results.................................. 22

4.1. Descriptive statistics and correlation matrix.................................................... 22

4.1.1. Opening and closing time of Indices ........................................................ 22

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iv

4.1.2. Descriptive statistics of Indices ................................................................ 23

4.1.3. Descriptive statistics of Indices’ return .................................................... 24

4.1.4. Correlation matrix..................................................................................... 25

4.2. Long-run interdependence ............................................................................... 26

4.2.1. Unit root test ............................................................................................. 26

4.2.2. Johansen’s cointegration........................................................................... 27

4.3. Short-run interdependence ............................................................................... 31

4.3.1. Granger causality analysis........................................................................ 31

4.3.2. VAR Model for estimation of return spill over ........................................ 34

4.4. Volatility spill over .......................................................................................... 40

4.4.1. BEKK model............................................................................................. 40

4.4.2. VAR – GARCH model............................................................................. 43

Chapter 5. Conclusions............................................................................................... 49

Figure .............................................................................................................................. 51

References....................................................................................................................... 53

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v

List of Figures

Figure 1. Index timings by UTC Time ........................................................................... 22

Figure 2. Index closing price .......................................................................................... 51

Figure 3. Index return ..................................................................................................... 52

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