The impact of COVID-19 on stock index volatility: Empirical evidence from Vietnam on VNIndex, 2021

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

NGUYỄN TRÚC QUỲNH

THE IMPACT OF COVID-19 ON STOCK

INDEX VOLATILITY: EMPIRICAL EVIDENCE

FROM VIETNAM ON VNINDEX

BACHELOR THESIS

FACULTY: FINANCE – BANKING

CODE: 7340201

GUIDING TEACHER: DR. NGUYỄN MINH NHẬT

HCMC, NOVEMBER 2021

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

NGUYỄN TRÚC QUỲNH

THE IMPACT OF COVID-19 ON STOCK INDEX

VOLATILITY: EMPIRICAL EVIDENCE FROM

VIETNAM ON VNINDEX

BACHELOR THESIS

FACULTY: FINANCE – BANKING

CODE: 7340201

GUIDING TEACHER: DR. NGUYỄN MINH NHẬT

HCMC, NOVEMBER 2021

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ABSTRACT

COVID-19 emerged to be a health crisis but its serious escalation forces human

to face with challenges in all aspects. Rapid increase in quantity of infected cases,

confirmed death as well as strict quarantine and remote working has slow downed

global financial markets which consists of stock markets. Since Vietnamese stock

market definitely could not be an exception in this crisis, a deep insight in the

influence of the pandemic on stock market volatility becomes essential.

The present study tries to explore the impact of the Coronavirus pandemic on

stock index volatility in Vietnamese stock market through VNIndex volatility. To

estimate the effect of the existence of COVID-19 on VNIndex, GARCH family

models which are known for their ability to model volatility are emloyed. Using these

models, the asymmetric nature of stock returns and the volatility of stock returns in

the period of the pandemic are examined. Most of the previous studies has divided

the sample period into two sub-periods, one period before the emergence of the

epidemic and one after that appearance. In this paper, the same approach is going to

be applied. In order to capture the volatility, the author utilizes at the same time the

GARCH(1,1) and EGARCH(1,1) models for the pre-COVID-19 era and the post￾COVID-19 era as well. The results of this study indicate that the pandemic has had a

significant and positive impact on stock market volatility, which means it has caused

higher volatility. In addition, the result also confirm the existence of leverage effect.

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DECLARATION OF AUTHENTICITY

This thesis with the topic “The impact of COVID-19 on stock index volatility:

Empirical evidence from Vietnam on VNIndex” is the author's research work and the

research results are honest. There are no previously published contents or contents

made by other authors except for the cited references which are from clear sources

presented in the thesis. The author would like to be responsible for my commitment.

Ho Chi Minh City, November 2021

Student in charge

Nguyễn Trúc Quỳnh

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ACKNOWLEDGEMENTS

First and foremost, a complete study would not be done without any assistance.

I would like to express my gratitude for the patience, support, and academic advice

of my supervisor, Dr. Nguyễn Minh Nhật, without whom this thesis would surely not

be possible.

Secondly, I would like to acknowledge both the Department of Finance and the

University of Banking of Ho Chi Minh City, for providing me with knowledge in

finance and banking throughout four years.

Finally, I would also like to thank my family for their encouragement in the

process of doing my Bachelor thesis as well as in my four-year journey in University

of Banking.

Ho Chi Minh City, November 2021

Student in charge

Nguyễn Trúc Quỳnh

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TABLE OF CONTENTS

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

1.1. Necessity of the topic...............................................................................1

1.2. Research objectives and questions...........................................................5

1.3. Research subjects and range ....................................................................6

1.4. Research methodology.............................................................................6

1.5. Research structure ....................................................................................7

1.6. Research contribution ..............................................................................7

CHAPTER 2. THEORICAL FRAMEWORK AND LITERATURE

REVIEW ...........................................................................................................9

2.1. Vietnam stock market overview ..............................................................9

2.2. General impact of COVID-19 on the economy .....................................11

COVID-19 and Vietnam economy ...............................................................14

2.3. Review of previous researches...............................................................16

2.4. Gaps of previous studies........................................................................20

CHAPTER 3. DATA AND METHODOLOGY ..........................................22

3.1. Data ........................................................................................................22

3.2. Methodology ..........................................................................................22

3.3. Testing for ARCH effect........................................................................25

3.4. Research models ....................................................................................26

CHAPTER 4. RESULTS AND DISCUSSION............................................29

4.1. Descriptive statistics ..............................................................................29

4.2. Unit root test...........................................................................................31

4.3. Test of ARCH effect on the data set ......................................................32