US macroeconomic news spillover effects on Vietnamese stock market

Abstract

Purpose -The purpose of this paper is to investigate the spillover effect of the US macroeconomic news on the first two moments of the Vietnamese stock market returns. Design/methodology/approach -The author collected market expectation and actual announcements data for 12 key US macroeconomic announcements for the period from August 2000 to September 2009 from Bloomberg. The dataset consists of monthly Non-farm payroll (NFPM), Unemployment level (UNEMP), Gross Domestic Product percentage level (GDP), Housing statistics (HOMEST), Industrial production (INDP), Leading Indicator (LEAD), Retail Sales (SALES), Consumer Price Index (CPI), Producer Index (PPI), Current Account (CA, quarterly), Trade Balance (BOT), and the Federal Reserve's target rates (FOMC, 8 times a year and ad hoc meetings if needed). The MA-EGARCH (1,1) model is used for the empirical test of the US macroeconomic news spillover effects on the VNI index. Findings -In general, the US real economic news has the strongest effect on the first two moments of the Vietnamese stock returns. This can be interpreted as evidence that Vietnamese market participants believe that the USA is targeting real economic activities other than other variables. It is also shown that even though the US stock market (proxied by S&P500 index) significantly affects the Vietnamese stock market returns, the spillover effect of the US macroeconomic news is still significant.Research limitations/implications -The author does not explore further on the transmission channels of the spillover effects of the US news on the Vietnamese stock market, reserving this task for future research. Originality/value -The paper contributes to the extant literature in several ways. First, to the author's knowledge, the current literature lacks empirical evidence for the impact of the US macroeconomic news on the first two moments of the Vietnamese stock markets. Given the growing integration between the two economies, evidenced by the fact that the USA is Vietnam's largest foreign direct investor and importer, the US macroeconomic news is very important, not only for Vietnamese policy makers but also for market participants. Furthermore, the choice of a small and open market with increasing exposure to the world economy and vulnerable to the US news (i.e. Vietnam) would help in reducing the problem of endogeneity bias in previous studies employing large economy pairs, as the US news might affect the Vietnamese stock market but not the reverse. Finally, previous studies tend to investigate the impact of macro news only on conditional returns. In this study, both conditional returns and the conditional variance of returns are modelled simultaneously in a time-varying framework (MA-GARCH) to better capture the impact of macroeconomic news on stock returns and stock market volatility.

Impacts of the US macroeconomic news on Asian stock markets

“…Again, we conjecture that this domestic effect if the US news also spillover to the Asian stock markets. This finding is also consistent with Andritzky et al (2007) and Nguyen (2011) where they find that the US's macroeconomic news reduces uncertainty in emerging markets. Amongst 14 news, ten news (FOMC, GDP, PPI, HS, IP, RS, NFP, JOB, CA and TB) lowers the conditional variance of the Asian stock markets, the other four news (LI, CPI, CONSUM and UE) raises volatility in the Asian stock markets as these might send mix signals about the underlying health and future prospect of the US economy that result in a higher level of volatility in the stock market as investors revise their trading strategies in different directions with different magnitudes.…”

“…Amongst 14 US news, the GDP and HS news have the most effect with 28 cases each. This suggests that under concurrent news scenarios information directly relating to the underlying health of the US economy is perceived more important to the Asian markets than the other news in line with the finding of Nguyen (2011).…”

“…Furthermore, given firm evidence has been established for the increasing linkages among national markets, macroeconomic news, conceptually, might also spillover from one economy to another through real and financial integration channels. For example, Nguyen (2011) finds that US real economics news is positively/negatively associated with the conditional mean/variance of the Vietnamese stock returns. Laeven and Tong (2012) find that global stock prices increase/decrease following unexpected monetary loosening/tightening in the US monetary policy.…”

Investigating Equilibrium Relationship between Macroeconomic Variables and Malaysian Stock Market Index through Bounds Tests Approach

“…At the same time, numerous studies analyzed the relationships between macroeconomic variables and stock market indices using GARCH volatility time-series models (Bhar and Malliaris, 2011;Chen, 2009;Erdem et al, 2005;Hanousek and Kocenda, 2011;Hsing, 2011;Hsing and Hsieh, 2012;Kim et al, 2004;Nguyen, 2011;Rangel, 2011). Also, the results indicated that the conditional volatility of macroeconomic variables significantly influence stock market indices.…”

Determinant Factors on Indonesia Economic Growth

“…In 2011 Indonesia's economic growth rate was 6.50 percent, in 2012 it dropped to 6.2 percent, in 2013 it fell again to 5.56 percent, in 2014 to 5.02 percent, in 2015 it was 4.79 percent, and in 2016 increased by 2.52 percent (BPS, 2017). (Nguyen, 2011) said that every percent of Indonesia's economic growth could only create a maximum employment of 200,000 people. Based on this information, Indonesia's economic growth in 2016 amounted to 5.02 percent, only able to create employment opportunities around 1.004.000 people.…”