A Nonlinear Autoregressive Distributed Lag (NARDL) Analysis on the Determinants of Vietnam’s Stock Market

Abstract

This study examines the impacts of some macroeconomic factors, including exchange rate, interest rate, money supply and inflation, on a major stock index of Vietnam (VNIndex) by utilizing monthly data from April, 2001 to October, 2017 and employing Non-linear Autoregressive Distributed Lag (NARDL) approach introduced by Shin et al. [33] to investigate the asymmetric effects of the aforementioned variables. The bound test verifies asymmetric cointegration among the variables, thus the long-run asymmetric influences of the aforesaid macroeconomic factors on VNIndex can be estimated. Besides, we apply Error Correction Model (ECM) based on NARDL to evaluate the short-run asymmetric effects. The findings indicate that money supply improves VNIndex in both short-run and long-run, but the magnitude of the negative cumulative sum of changes is higher than the positive one. Moreover, the positive (negative) cumulative sum of changes of interest rate has negative (positive) impact on VNIndex in both short-run and long-run, but the former's magnitude exceeds the latter's. Furthermore, exchange rate demonstrates insignificant effects on VNIndex. Also, inflation hampers VNIndex almost linearly. This result provides essential implications for policy makers in Vietnam in order to successfully manage and sustainably develop the stock market.

The asymmetric impact of interest and exchange rate on the stock market index: evidence from MENA region

“…Le Phong et al (2019) examined the impact of some macroeconomic factors such as exchange rate, interest rate and money supply on the Vietnam stock market index using monthly data from 2001 to 2017 and the NARDL approach introduced by Shin et al (2014). The model indicates the asymmetric impact of money supply and interest rate on the index return.…”

“…The hypothesis that macroeconomic policies significantly affect stock market returns is of great interest among many academics and practitioners. Le Phong et al (2019) used non-linear ARDL approach to indicate the significant asymmetrical effects of money supply, interest rate and inflation on VNIndex (the market index of Vietnam). They found that in the short-run, the effect of the positive components is substantially higher than the negative components, but they demonstrated the opposite in the long-run.…”

Nexus between Governance Indicators & Sustainable Stock Market Development in Pakistan: Evidences from Symmetric and Asymmetric Analysis

“…The brief discussion on Table-5 demands an in-depth investigation to find out hidden association between variables, as this can be further tested by using ARDL (uni-directional) and NARDL (bi-directional) frame to address asymmetries. For better predictions, the results of bi-directional causality & low values of adjusted R 2 , must be investigated into its POS & NEG partial sums of decomposition of variables to enhance the predictive power of selected components of GI and to develop graphical asymmetric multipliers for cumulative dynamics called AMCD graphs (Allen & McAleer, 2020;Okere, Muoneke, & Onuoha, 2021;Phong, Van, & Bao, 2019).…”

“…The convergence rate (SOA), in case of NARDL, is worth-mentioning, 64.02% Per Annum compared to 32.34% per annum convergence rate in case of ARDL. Hence, NARDL has better predictive power accordingly (K. Ahmed et al, 2021;Bist, 2017;Phong et al, 2019;Shin, Yu, & Greenwood-Nimmo, 2012).…”

Equity super sectors connectedness and its determinants: evidence from the Johannesburg Stock Exchange.

“…Lastly, the validity and reliability of the NARDL model has been established through different work from different authors for example in the analysis of the FTSE and S & P 500 indexes, the determinants of crude oil prices and in the determinant of Vietnam's stock market (Allen, & McAleer, 2021;Salem, Nouira, Jeguirim & Rault, 2022;Phong, Van & Bao, 2019) respectively.…”