Luận văn thạc sĩ UEH the impacts of capital flows on vietnam stock market

UNIVERSITY OF ECONOMICS

HO CHI MINH CITY

VIETNAM

INSTITUTE OF SOCIAL STUDIES

THE HAGUE

THE NETHERLANDS

VIETNAM- NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE IMPACTS OF CAPITAL FLOWS ON

VIETNAM STOCK MARKET.

BY

TRAN TUYET HANH

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, NOVEMBER 2012

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UNIVERSITY OF ECONOMICS

HO CHI MINH CITY

VIETNAM

INSTITUTE OF SOCIAL STUDIES

THE HAGUE

THE NETHERLANDS

VIETNAM- NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE IMPACTS OF CAPITAL FLOWS ON

VIETNAM STOCK MARKET.

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

TRAN TUYET HANH

Academic Supervisor:

DR. NGUYEN HOANG VU

HO CHI MINH CITY, NOVEMBER 2012

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DECLARATION

I hereby certify that the substance of the thesis has not already been submitted for

any degree and is not being currently submitted for any other degree.

I also certify that, to the best of my knowledge, and help received in preparing the

thesis and all sources used have been acknowledged in the thesis.

Signature

TRAN TUYET HANH

Date: ..................... .

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i

ACKNOWLEDGMENTS

I would like to express my gratitude to all those who gave me the possibility to complete

this thesis.

I am deeply grateful to my supervisor Dr. Nguyen Hoang Vu from Department of

Mathematic and Statistics, Dr. Nguyen Trong Hoai-Vice President, Dr. Pham Khanh Nam

from Department of Development Economics , University of Economics Ho Chi Minh

City whose support, stimulating suggestions and encouragement helped me in all the time

of research for writing this thesis.

I am also very grateful to all lecturers of the Vietnam-Netherlands Programme for giving

me knowledge and guidance to fulfill the M.A Programme.

I would like to thank all the members of the Vietnam-Netherlands Program, especially,

VNP Library for helping me to have necessary documents and research papers during my

completion of the thesis.

Finally, I am indebted to my parents whose love, sympathy and encouragement enabled me

to complete this thesis. I am also thankful to my classmates for their warm

encouragement.

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FDI

FPI

FII

WTO

VSM

HOSE

HNX

PIE

VN-Index

IPO

OTC

LDCs

liP

VAR

ADF

pp

ECM

SBV

sse

CPI

ACRONYMS AND ABBREVIATIONS

Foreign Direct Investment

Foreign Portfolio Investment

Foreign Indirect Investment

World Trade Organization

Vietnam Stock Market

Hochiminhcity Stock Exchange

Hanoi Stock Exchange

Price-earning

Vietnam Index

Initial Public Offering

Over The Counter Market

Less Developed Countries

Index of Industrial Production

Vector Auto regression

Augmented Dickey Fuller

Phillips Peron

Error Correction Model

State Bank of Vietnam

State Securities Commission of Vietnam

Consumer Price Index

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ABSTRACT

This thesis investigates the impacts of FPI flows on Vietnam stock market (VSM).

In other words, we aim to examine whether a long-run or short-run impact of FPI

flows on VSM exists or not. And, if any, how long does it take for changes to be

fully effective? We use the mol!thly time series data of VN-Index and FPI flows

from July 2000 to June 2012 to analysis. In order to calculate the growth rate of

VN-Index, we take logarithm ofVN-Index series and denote it as Delta-VN. Then,

we adopt various techniques on time series regression such as unit root test using

both Augmented Dickey Fuller (ADF) test and Phillips Peron (PP) test for

stationary, co-integration test using Engle &Granger approach and Johansen

approach for examining the existence of a long-run relationship between two

variables, Granger Causality test for checking the existence and direction of

causality relationship between them, error correction models for investigating the

existence of short-term relationship. Moreover, we also apply Serial Correlation LM

test, Heteroskedasticity ARCH test, Histogram Normality test to check the

appropriateness of the estimated model. The research findings show that there is an

unilateral effect from FPI flows on Vietnam stock returns. The thesis also illustrates

an existence of a long-run impact between them when an increase in FPI flows can

lead to 86% of increase in Vietnam equity returns. On the other hand, there is also a

short-run impact from FPI on VSM which would be decreasing gradually since the

third month.

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TABLE OF CONTENTS

CHAPTER 1. INTRODUCTION ................................................................................. !

1.1 Problem statement ...................................................................................................... 1

1.2 Research objectives .................................................................................................... 4

1.3 Research questions ..................................................................................................... 4

1.4 Research scope .......................................................................................................... 4

1.5 Structure of the thesis ................................................................................................ 5

CHAPTER 2. LITERATURE REVIEW ..................................................................... 6

2.1 The role ofFPI on economic development.. .............................................................. 6

2.2 The role of Vietnam Stock Market ........................................................................... 7

2.3 Theoretical framework ................................................................................. 8

2.3.1Foreign Portfolio Investment and stock market .......................................... 9

2.3.2 Conceptual framework .................................................................... 11

2.4 Empirical studies ...................................................................................... 13

2.5 Suggested research model.. .......................................................................... 15

2.6 Chapter remark ........................................................................................ 16

CHAPTER3. RESEARCH METHODOLOGY&DATA COLLECTION ............ 17

3 .1 Econometric techniques ........................................................................................... 1 7

3 .1.1 Stationary and unit root tests .................................................................... 1 7

3 .1.2 Co integration ............................................................................................ 18

3 .1.3 Granger Causality tests .......................................................... 18

3.1.4Error correction mechanism ...................................................... 19

• 3.2 Data collection ......................................................................................................... 20

3 .3 Data analysis ............................................................................................................ 22

3.3.1 Dependent variable: Delta-VN ................................................................ 22

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