Hoang Tuan DAO, Le Hang VU, Thanh Lam PHAM, Kim Trang NGUYEN /

Journal of Asian Finance, Economics and Business Vol 9 No 5 (2022) 0285–0294 285

Print ISSN: 2288-4637 / Online ISSN 2288-4645

doi:10.13106/jafeb.2022.vol9.no5.0285

Macro-Economic Factors Affecting the Vietnam Stock

Price Index: An Application of the ARDL Model

Hoang Tuan DAO1, Le Hang VU2, Thanh Lam PHAM3, Kim Trang NGUYEN4

Received: February 10, 2022 Revised: April 30, 2022 Accepted: May 10, 2022

Abstract
Using the ARDL approach, this study examined the impact of macro factors on Vietnam’s stock market in the short and long run from
2010 to 2021. The State Bank of Vietnam and the International Monetary Fund provided time series data for this study. Research results
show that in the long run, money supply and exchange rate respectively affect the stock market. The money supply had a positive effect on
the VN-Index, while the exchange rate showed the opposite effect. However, the study did not find a relationship between world oil price
and interest rates on VN-Index in the long run. On the other hand, in the short term, there are relationships between variables; specifically,
interest rates and exchange rates have a negative impact on the VN-Index, while the world oil price and the fluctuation of money supply
M2 of the previous one and two months showed an impact in the same direction on this index. The differences in the regression results on
the impact of exchange rate and oil price on the VN-Index compared to previous studies come from the characteristics of Vietnam’s stock
market, with the large capitalization of companies in the oil and gas sector, and the structure of Vietnam’s economy with export heavily
depends on FDI sector.

Keywords: VN-Index, Money Supply, M2, Oil Prices, Interest Rates, Exchange Rates

JEL Classification Code: C32, G10, G14

1. Introduction variables such as inflation, exchange rate, money supply, and

industrial production index. In particular, the results of that
The financial market plays an important role in attracting effect may vary from country to country. Currently, Vietnam’s
and mobilizing domestic and foreign financial sources, stock market has been gradually perfecting its structure,
simultaneously encouraging saving and investment, which developing into an important capital mobilization channel
contributes to promoting and improving the efficiency of for the economy, with the scale of capital mobilization through
financial use. Several domestic and international macro factors the stock market in the period 2011–2020 reaching nearly
that directly promoted the stock market’s fluctuations have 2.9 million billion dongs, almost 10 times as much as that
been researched and studied by many authors before. Most in the 2001–2010 period, contributing 19.5% of total social
studies stated that the stock markets were affected by macro investment capital on average; contributing to restructur-
ing Vietnam’s financial system towards a more balanced
and sustainable direction. Studying how macroeconomic
1
First Author. Academy of Policy and Development, Hanoi, Vietnam. variables affect the market will help policymakers thoroughly
Email: [email protected] understand and appropriately adjust policy tools, avoiding
2
Corresponding author. Institute of Leadership and Public Policy,
Ho Chi Minh National Political Academy, Hanoi, Vietnam. [Postal
shocks to the market. Simultaneously, from the perspective
Address: 135 Nguyen Phong Sac, Nghia Tan Street, Cau Giay of investors, domestic and foreign investors also want to
District, Hanoi, Vietnam] Email: [email protected] know how much their assets would be affected by the sudden
3
Center for Socio-Economic Policy Research, Hanoi, Vietnam. movements of changing economic variables.
4
Center for Socio-Economic Policy Research, Hanoi, Vietnam.
Email: [email protected] Although the stock market, in general, or the stock price
index, in particular, is affected by endogenous factors as
© Copyright: The Author(s)
This is an Open Access article distributed under the terms of the Creative Commons Attribution well as exogenous factors and many others, this study only
Non-Commercial License (https://creativecommons.org/licenses/by-nc/4.0/) which permits
unrestricted non-commercial use, distribution, and reproduction in any medium, provided the
focuses on clarifying the impact of several exogenous factors
original work is properly cited. on the VN-Index in both the short-term and long-term.
 Hoang Tuan DAO, Le Hang VU, Thanh Lam PHAM, Kim Trang NGUYEN /
286 Journal of Asian Finance, Economics and Business Vol 9 No 5 (2022) 0285–0294

2. Literature Review evidence, Mukherjee and Naka (1995) found a positive

effect of the Japanese Yen/USD exchange rate on Japan’s
2.1. Theoretical Basis stock indexes.
In the denominator, variables that change the discount rate
There have been many studies analyzing the impact of will also change the value of the stock. Empirical studies often
macro variables on the stock market or stock prices. For found an inverse relationship between interest rates and stock
example, Chen et al. (1986) researched the impact of six prices. Asprem (1989) showed this opposite effect in 5/10
macro variables on the NYSE index. A simple asset pricing European countries researched. Mukherjee and Naka (1995)
model, according to Chen et al. (1986), could be written as: found the opposite effect as expected between long-term interest
rates and Japan’s stock indexes. However, the relationship
E[c] between short-term interest rates and Japan’s stock indexes
p= was positive. The reason could be that short-term interest rates
k decreased when the money supply increased. Therefore, the
positive effect of money supply on stocks through increasing
In which, p is the value of the asset or security, E[c] is market liquidity (liquidity effect) was partly reflected in the
the market’s expectation of future dividend flows, and k is estimated coefficient of short-term interest rates.
the discount rate. Macro variables that change the market’s Research by Adam and Tweneboah (2008) examined the
expectations for the right side of the equation will affect the role of macroeconomic variables in stock price movements
stock prices. in Ghana. The author analyzed the long-run and short-run
For the numerator, macroeconomic variables that relationships between the Ghana stock market indexes
change the market’s expectations of future dividend flows and foreign direct investment, the Treasury bill rate (as a
will change the value of the stock. High oil prices, for measure of interest rates), the consumer price index (which
example, will increase the business costs in the future, measures inflation), and exchange rates as macroeconomic
erode profits and future dividend flows, and therefore are variables from January 1991 to April 2006 using Johansen’s
expected to negatively affect the stock prices. However, multivariable cointegration test and innovative accounting
for countries whose economies are based on oil exports, techniques. Research results showed that the identified
oil prices can positively affect stock indexes. Degiannakis macroeconomic variables significantly influence stock price
et al. (2018) fully summarized the results of theoretical and fluctuations in Ghana.
experimental studies on the relationship between oil prices Richards et al. (2009) analyzed the relationship
and stock prices. The money supply had a two-way effect between the exchange rate (AUD/USD) and the All
on stock prices. Firstly, an increase in money supply raised Ordinaries stock price index in Australia from January 2,
expectations of future inflation, increased business costs, 2003, to June 30, 2006. The authors used the OLS
and negatively impacted corporate profits and stock prices. regression method to estimate the relationship between
On the other hand, an increase in money supply raised the the 2 variables based on the original data series and the
liquidity effect for the financial market and the stock market first differences. Then, the author used the VAR model and
in particular. Abundant cash flows had a positive impact on Granger causality test to estimate the relationship between
stock value. The study by Asprem (1989) on the impact of the selected variables. Research results showed a positive
macro variables on stock indexes of 10 European countries cointegrating relationship between the two variables.
showed that the impact of money supply on stock indexes in Granger causality confirmed the existence of a causal
most countries is positive, showing that the liquidity effect impact of stock price indexes on exchange rates.
was more important in the relationship between money Ahmet (2010) used the OLS model to analyze the impact
supply and stocks. The study also found the impact of of 7 macroeconomic variables including consumer price
exchange rates on stocks in 6 of the 10 countries researched. index, interest rates, gold prices, industrial production index,
When the exchange rate rose, or the value of the domestic oil prices, exchange rates, and money supply to the Turkish
currency fell, a country’s exported goods would become stock market (via the ISE-100 index). Using monthly data,
more competitive. Increased export turnover had a positive from January 2003 to March 2010, the results showed that
impact on the economy in general and stock values in interest rates, industrial production index, oil prices, and
particular. In international macroeconomic theories, this is exchange rates had a negative impact on the ISE-100 index,
the beggar-thy-neighbor effect, firstly shown in the Mundell- while money supply positively affected the ISE-100 index.
Fleming-Dornbusch model. Obtsfeld and Rogoff (1995) On the other hand, the inflation rate and gold prices were
showed that an increase in the domestic money supply could found not to have any significant effect on the Turkish
have a positive effect on both the domestic economy and ISE-100 index.
the foreign economy, not only the domestic economy as in Bekhet and Mugableh (2012) analyzed the long-run and
Mundell-Fleming-Dornbusch. Complementing the empirical short-run equilibrium relationships between macroeconomic
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Journal of Asian Finance, Economics and Business Vol 9 No 5 (2022) 0285–0294 287

variables and the Malaysian stock market indexes for the The gold price was a factor that did not significantly affect
period 1977-to 2011. Using the ARDL model, the study the VN-Index in both the short and long term.
showed that in the long run, the exchange rates, inflation, The research by Trinh and Linh Dan (2020) examined
producer price index, and money supply M3 had a negative the asymmetric influence of oil price fluctuations on the
impact on the stock indexes, while GDP had a positive Vietnam stock market in the short and long term since
impact. On the other hand, in the short term, inflation and the 2008 financial crisis. The authors used a non-linear
money supply M3 positively affected the stock indexes, ARDL model in the direction of bounds testing on monthly
while the exchange rates, producer price index, and GDP frequency data of VN-Index, Brent oil prices, industrial
negatively impacted the stock indexes. In addition, this production index, and money supply. The research results
paper had an important role for policymakers, financial showed that: (1) In the long term, oil price fluctuations had
economists, and domestic and international investors in the a negative effect on Vietnam’s stock market, an increase in
Malaysian stock market. oil prices made the stock market worse, and a decrease in
In Vietnam, there have been some authors approaching oil prices caused the market to prosper. Rising oil prices had
to build different research models to examine and evaluate a stronger effect on the stock market than falling oil prices,
the impact of several macroeconomic factors on the reflecting the asymmetry of oil price effects on the market
stock market. There, the study by Kieu and Diep (2013) in the long run; (2) In the short term, the market showed an
measured the relationship of macroeconomic factors with opposite reaction compared to the long term.
the fluctuation of Vietnam’s stock market (through the Based on the above empirical evidence, most studies
VN-Index stock price). There are four factors including showed that oil prices, gold prices, interest rates, inflation,
the consumer price index CPI (a measure of inflation), the exchange rates, money supply all affect the stock markets
USD/VND exchange rate, and the money supply M2. The (Sujit & Kumar, 2011; Nandha & Singh, 2011; Akbar et al.,
study showed that the VN-Index stock price had positive 2019; Alqattan & Alhaky, 2016; González et al., 2018;
relationships with money supply M2 and domestic gold Geetha et al., 2011; Lee & Brahmasrene, 2018, 2020). The
prices in the long run. On the contrary, it showed a negative studies used different models, such as OLS, ARDL, and
relationship with inflation, while there was no relationship VECM, with different data types to evaluate the relationship
between exchange rates and stock price indexes. In the among variables.
short term, the current stock price indexes were directly
proportional to the previous month’s stock price indexes 3. Data and Research Methods
and inversely proportional to the exchange rates.
Phong and Bach Van (2015) used the monthly time 3.1. Variables and Research Hypothesis
series from January 2001 to December 2013 to study the
effects of macro factors on the Vietnam stock index. By Oil prices and the stock market
using the ARDL model to study short-run and long-run Oil is an important source of fuel, an essential transport
relationships between variables. The research results input that cannot be replaced in the production process.
showed that, in both the short and long term, the money Besides, oil is also a popular trading commodity in the
supply had positive effects on the stock index, while factors world. Therefore, the fluctuation of rising oil prices affects
such as exchange rates, lending interest rate, government macroeconomic variables such as inflation rates, monetary
bond interest rate, and inflation had negative effects on policy, national income, production costs, profits of the
stock indexes. In addition, the study also provided some business sector, etc., affecting asset values and financial
policies and sustainable development orientations for the markets in general. Therefore, the change in oil price is
Vietnam stock market. expected to have a certain influence on the stock market.
The research by Nhu Quynh and Huong Linh (2019) Rising oil prices will put pressure on increasing business
measured the impact of 6 macroeconomic factors, including costs and energy-dependent industries. As a result, it
oil prices, consumer price index (which represents inflation), increases expected future costs, reduces cash flows, and
money supply M2, interest rates, exchange rates, and gold therefore reduces the value of securities. When considering
prices on the Vietnam stock market (via the VN-Index stock a particular type of security, the fluctuation of oil prices
price) in the period 2000–2018 using the VECM model. will raise income if the company is a net producer of oil;
The research results showed that in the long-term, inflation and decrease it if that company is a net consumer of oil.
had a positive impact on the VN-Index, and interest rates Specifically, for a net importing country, an increase in
had a negative impact on this index. In the short term, the oil prices will create pressure that reduces the exchange
VN-Index was mainly affected by the VN-Index of the rates and increases the domestic inflation rate; the expected
previous month. Besides, VN-Index showed positive rela- inflation rate rising leads to an increase in discount rate
tionships with interest rates, money supply, and oil prices accordingly. Hence, rising oil will have a negative impact
and negative relationships with inflation and exchange rates. on earnings from stocks. In contrast, for a net oil exporter,
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288 Journal of Asian Finance, Economics and Business Vol 9 No 5 (2022) 0285–0294

an increase in oil prices will create a positive impact on the use of financial assets such as securities. In addition,
the stock market. So the relationship between oil prices an expansionary monetary policy reduces interest rates
and stock prices can be positive or negative. Vietnam is and high credit growth rates; reduces the cost of capital of
now gradually turning into a crude oil importer. However, enterprises, thereby increasing investors’ expectations as
the scale of the oil industry on the Vietnam stock market is well as earnings. This will stimulate cash flow into the stock
relatively large. In the list of 45 companies listed on HOSE market, increasing stock prices.
with a market capitalization of over 1 billion USD, there
are a series of enterprises in the oil and gas sector, such as 3.2. Data
PV GAS, PetroVietnam Power Corporation, PetroVietnam
Technical Services Corporation, and PetroVietnam Tech- This study uses monthly time series data from January
nical Services Corporation, PetroVietnam Drilling, and Well 2010 to December 2021, with 144 observations. Description
Service Corporation, and PetroVietnam Ca Mau Fertiliser of data source includes the variables of VN-Index (VNI)
JSC. Especially, as of October 2021, PV GAS’s market was taken from cophieu68.com; world oil prices (OP)
capitalization reached 10 billion USD, being in the top 5 were obtained from Federal Reserve, interest rates (IR) and
largest enterprises on the HOSE. Expected results on the money supply M2 (M2) were both obtained from the State
impact of oil prices on Vietnam’s stock index, therefore, will Bank of Vietnam, exchange rates (E) were collected from the
be positive. International Monetary Fund. In which the variables VNI,
OP, and IR were calculated according to the data series from
Interest rates and the stock market daily data to monthly data according to the average method.
Interest rates and the stock market have an inverse Table 1 of descriptive statistics shows that the mean
relationship, meaning that when interest rates rise, stock prices and standard deviation of the money supply variable M2
fall and vice versa. In addition, when interest rates go up, the was the largest, explaining that the dispersion of the data of
interest rates of credit institutions and government interest this variable compared to the mean value is very large. In
rates rise to compete, leading to the volume of idle cash of addition, the maximum value of money supply is more than
people and organizations tending to flow into the banking 12 million billion VND, and the smallest value of money
system or be invested in government bonds. This causes the supply is 2 million billion VND. For the VN-Index, the mean
cash flows to decrease in the stock market and the stock price of this index is about 713 points, of which the maximum
index to decrease. On the other hand, rising interest rates also value and the minimum value respectively are 1,472.196
affect a business, which can lead to a narrowing of the scope points and 356.8194 points.
of activities, and business results will not be as effective as Regarding the matrix of correlation coefficients
expected. Consequently, it negatively impacts the psychology (Table 2), most pairs of variables have correlation
of investors, leading to a decline in investment and the stock coefficients (> 0.5) except for the world oil price variable
market. Therefore, it can be seen that interest rates have a and the VN-Index, in which, the VN-Index and money
negative effect on the stock index. We expect interest rates to supply M2 has a positive correlation and a very strong
have a negative impact on the stock index. correlation (0.92917).

The impact of exchange rates on the stock market 3.3. Empirical Model
When the exchange rates increase, the local currency
will depreciate, which will attract a lot of capital from To analyze the impact of macroeconomic variables on
abroad to invest in the country to find profits and gain from the VN-Index (Table 3), this study uses the Autoregressive
price differences in the stable investment environment. An
undervalued local currency also has a positive effect on
Table 1: Descriptive Statistics
exports, through which a positive impact on the stock market
is shown. As Vietnam is a highly open economy in terms of
VNI OP IR M2 E
trade, we expect the exchange rates to have a positive impact
on the stock index. Mean 713.41 75.671 4.0017 6,534,532 21,860
Standard 273.25 26.38 3.6064 3,229,451 1.254,2
The impact of money supply on the stock market deviation
Money supply M2 and the stock market have a positive
Minimum 356.82 18.379 0.1027 2,044,501 18,474
relationship, which is shown through monetary policy.
value
When implementing an expansionary monetary policy, more
money is put into circulation, so more money will flow into Maximum 1,472.2 125.45 14.503 12,907,567 23,616
the production and consumption of goods and also increase value
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distributed lag model (ARDL), so the research model has 4. Empirical Results
the form of:
4.1. Unit Root Test
log VNIt = f (log OPt , log Et , IR t , log M2t , ε t )
Unit root testing is an important first step in model
estimation. In this study, the commonly used unit test method
In which, εt: Random error is ADF of Dickey and Fuller (1979) to test the unit-roots for
    t: time variable by quarter, from January 2010 the variables in the model. Based on hypothetical H0: the
to December 2021 series of researched variables has a unit root (non-stationary)
and H1: The series of researched variables has no unit root
(stationary). If the absolute value of the statistical test is
Table 2: Correlation Coefficient Matrix greater than the critical value or the p-value < α, with the
significance level α = 5% or α = 10% or α = 1%, the series of
VNI OP IR M2 E researched variables is stationary (Table 4).
The test results show that the variables logVNI, logOP,
VNI 1 logE, IR, and logM2 were cointegrated of order 1.
OP –0.451 1
IR –0.58 0.5238 1 4.2. Bound Test
M2 0.9292 –0.622 –0.651 1 The bound testing is the first step of the ARDL proce-
E 0.7463 –0.618 –0.613 0.891579 1 dure to determine whether a cointegration relationship exists

Table 3: Description of Variables in the Model

Variable Type Variable Name Unit Measurement Method Symbol

Dependent variable VN-Index Point The natural logarithm of the VN-Index logVNIt
Independent variables World oil prices USD/barrel The natural logarithm of world oil prices logOPt
Interest rates % IRt
Exchange rate VND/USD The natural logarithm of the exchange rates logEt
Money Supply M2 billion dong The natural logarithm of the money supply M2 logM2t

Table 4: Result of Unit Root Test of Variables

Critical Value
Variables ADF test Conclusion Order of Integration
1% 5%
logVNI 0.034794 –3.476805 –2.881830 Non-stationary series
D(logVNI) –9.409727*** –3.476805 –2.881830 Stationary series I(1)
logOP –1.849328 –3.477144 –2.881978 Non-stationary series
D(logOP) –9.377064*** –3.477144 –2.881978 Stationary series I(1)
IR –1.750752 –3.476472 –2.881685 Non-stationary series
D(IR) –10.75214*** –3.476805 –2.881830 Stationary series I(1)
logE –2.844038 –3.477144 –2.881978 Non-stationary series
D(logE) –10.27421*** –3.477144 –2.881978 Stationary series I(1)
logM2 –2.373185 –3.481623 –2.883930 Non-stationary series
D(logM2) –4.500277*** –3.481623 –2.883930 Stationary series I(1)
Note: ***, **
Correspond to 1% significance level.
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290 Journal of Asian Finance, Economics and Business Vol 9 No 5 (2022) 0285–0294

among variables, which means deciding whether a long-run is statistically significant at the 10% significance level. In parti-
relationship exists among the variables. cular, when the exchange rate increased by 1%, the average
VN-Index decreased by 4.322%, with other factors unchanged.
H0 : The model does not have a long This result is consistent with previous studies by Ahmet (2010),
 − run relationship among the variables Bekhet and Mugableh (2012), Tran (2017), and Thanh Long

 and Thu Trang (2008). On the other hand, interest rates show
H1: The model has a long a positive impact on the VN-Index, but this coefficient is not
 − run relationship among the variables statistically significant. Therefore, there is no relationship
between interest rates and VN-Index in the long run.
Finally, money supply M2 was found to have a positive
According to the results in Table 5, we can see that the
impact on the VN-Index and this coefficient is statistically
statistic (3.241882) is greater than the upper bound limit
value at the significance level of 10% (3.09). Therefore,
hypothesis H0 is rejected. So, at the 10% significance level,
the model has a long-run relationship among the variables.

4.3. Optimal Lag Selection

This is an important step before estimating the ARDL
model. Finding the optimal lag for time series in the ARDL
model is very important to have normally distributed noise
with no autocorrelation and no heteroskedasticity. When
choosing a model, the most effective criterion commonly
used is AIC. The results show that the lag of the ARDL model
based on the AIC criterion was ARDL (2, 1, 1, 1, 3). This lag
is the best suitable, satisfying the assumption of optimal lag
of the ARDL model (Figure 1).
In the ARDL model, the adjusted R2 is 0.988092, which Figure 1: Illustration of the AIC Criterion for the Best
means that the model explains 98.8% of the variation of the 20 Models
VN-Index variable according to the variables of world oil
prices, interest rates, exchange rates, and money supply M2. Table 6: Estimation of Long-Run Coefficients of
the ARDL Model
4.4. Estimation of Long-Run Coefficients
Dependent Variable: LOG(VNI)
The results of the long-run coefficient estimation of the
ARDL model (2, 1, 1, 1, 3) are shown in Table 6. Independent Variables Coefficient Prob.
The world oil prices have a positive impact on the VN- LOG(OP) 0.164872 0.1875
Index. Specifically, when the world oil prices increased by
1%, the average VN-Index increased by 0.1649%, with other LOG(E) –4.322567* 0.0579
factors unchanged. But this coefficient is not statistically IR 0.004260 0.7780
significant. Therefore, there is no relationship between world LOG(M2) 1.313205*** 0.0000
oil prices and VN-Index in the long run.
In contrast, a negative relationship exists between the C 7.926293 0.0000
exchange rate and the VN-Index in the long run. This coefficient Note: ***, *
Correspond to the significance level of 1%, 10%.

Table 5: Bound Test Results

Statistical The Critical Values of the Bounds

No. of Order
Value F I(0): Lower Bounds; I(1): Upper Bounds

90% 95% 97.5% 99%

k F-statistics
I(0) I(1) I(0) I(1) I(0) I(1) I(0) I(1)
4 3.241882 2.2 3.09 2.56 3.49 2.88 3.87 3.29 4.37
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Journal of Asian Finance, Economics and Business Vol 9 No 5 (2022) 0285–0294 291

significant at the significance level of 1%, showing that M2 increased by 1%, the current VN-Index increased by 0.117%.
money supply has an important influence on the sustainable But this coefficient is not statistically significant. Besides,
development of the Vietnam stock market. Specifically, when the world oil prices have a positive impact on the VN-Index
the money supply M2 increased by 1%, the average VN-Index in the short term and this is statistically significant at 1%.
increased by 1.313%, with other factors unchanged. This In particular, when the world oil price increased by 1%, the
finding is consistent with the studies of Rahman et al. (2009), average VN-Index increased by 0.1258% with all other factors
Kieu and Diep (2013), and Nhu Quynh and Huong Linh (2019). unchanged. This finding is consistent with the studies of Thuy
From the model’s estimation results, it shows that, in the (2018) and Nhu Quynh and Huong Linh (2019). On the other
long run, the VN-Index is affected by the exchange rates hand, VN-Index is negatively affected by the exchange rate in
and the money supply M2. Specifically, the exchange rates the short run, which is consistent with the negative impact in
positively affect the VN-Index, while the money supply M2 the long run. This coefficient is statistically significant at the
has a negative impact on the VN-Index. However, world oil 1% level. Specifically, if the exchange rate increases by 1%,
prices and interest rates were found to not affect the Vietnam the average VN-Index will decrease by 1.7427% with other
stock market index. factors unchanged. In addition, money supply M2 was found
to have a positive effect on the VN-Index, but this coefficient
4.5. Estimation of Short-Run Coefficients is not statistically significant. On the other hand, when money
supply M2 of the previous 1 month and 2 months increased
To analyze the effect of short-run changing trends on by 1%, the current VN-Index increased by 0.8045% and
equilibrium, in the long run, this study uses the error correction 0.7259% respectively, with other factors unchanged.
model (ECM). Table 7 presents the short-term coefficient Finally, interest rates negatively affect the VN-Index in
estimation results from the ARDL model with the selected lag. the short run. This coefficient is statistically significant at
The estimation results show that, in the short term, the 5%; specifically, when interest rates increased by 1%, the
VN-Index is affected by its past and the changes of average VN-Index decreased by 0.0087%. This result is
the remaining variables to different degrees. In which the consistent with previous studies by Alam and Uddin (2009),
VN-Index was affected by itself in the previous month. Ahmet (2010), and Nhu Quynh and Huong Linh (2019).
Specifically, when the VN-Index of the previous month In summary, in the short term, there are relationships
among variables, specifically interest rates and exchange
Table 7: Estimation of Short-Run Coefficients of the ARDL rates have negative impacts on the VN-Index, while world
Model (2, 1, 1, 1, 3) oil prices and money supply M2’s fluctuations over the
previous 1 month and 2 months have a positive impact on
Variables Coefficient Prob. this index. In addition, the ECM error correction coefficient
(–1) is statistically significant at 1% with the corrected error
D( LOGVNI(–1)) 0.117441 0.1072 in the range of [–1 < –0.098527 < 0], which shows the degree
D(LOGOP) 0.125724*** 0.0000 of adjusting at 9.853% of the deviation between the short-
D(LOGE) –1.742690*** 0.0002 run values to reach the long-run equilibrium.
D(IR) –0.008697** 0.0122
4.6. Diagnostic Tests
D(LOGM2) 0.154142 0.4790
D(LOGM2(–1)) 0.804451*** 0.0003 After examining the impacts of the variables in the short
and long run, the study tested the accuracy of the model; the
D( LOG M2 (–2)) 0.725940*** 0.0027
tests used in this study include testing the fit of the model,
ECM( –1) * –0.098527*** 0.0000 Heteroskedasticity testing, normal distribution testing, auto-
Note: ***, **Correspond to the significance level of 1%, 5%. correlation testing, and stability testing (Table 8).

Table 8: Summary of the Model’s Tests

Tests Prob. Conclusion

Ramsey RESET 0.1799 The model has the correct functional form
Jarque-Bera 0.4973 The residuals are normally distributed
Breusch-Godfrey LM 0.8902 The model does not have autocorrelation
Heteroskedasticity Test: Breusch - Pagan - Godfrey 0.1300 There is no Heteroskedasticity for the model
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292 Journal of Asian Finance, Economics and Business Vol 9 No 5 (2022) 0285–0294

Figure 2: The CUSUM and CUSUMSQ Test Results

To confirm the stability of the model, Figure 2 presents time but in the long term. Therefore, in the long run, these
the results of testing the cumulative sum of the residuals two effects cancel each other, leading to the fact that the
(CUSUM Test) and the modified cumulative sum of the model could not find a clear relationship between oil prices
residuals (CUSUMSQ Test). and the VN-Index.
The results show that the cumulative sum of the residuals The model results also show that the exchange rate
and the modified cumulative sum of the residuals were in the variable has a negative impact on the VN-Index in both the
standard range at the 5% significance level. So the residual short and long term. This finding is different from many
is stable. Hence, through testing the diagnoses, the model is other experimental studies around the world. Asprem (1989)
fit and reliable. and Mukherjee and Naka (1995) found evidence of a positive
relationship between exchange rates and stock indexes in
5. Discussion and Conclusion European countries and Japan. This positive relationship
is consistent with theories of international economics.
This study has been conducted to review the macro When the exchange rate rises and the domestic currency
factors that can affect the Vietnam stock market in the short depreciates, exported goods become more competitive, and
term and the long term by applying the ARDL method. export turnover increases. The local economy then gains
According to the regression results of the ARDL model, benefits. This beggar-thy-neighbor effect may still hold for
the oil price variable has a positive impact on the VN-Index the Vietnamese economy. However, the characteristic of
in the short term. This is not a surprising result because Vietnam’s economy is that the export sector is dominated
the oil and gas industry accounts for a relatively large by FDI enterprises. According to a report by the Ministry of
proportion of the Vietnam stock exchange. Rising oil prices Planning and Investment (2019), in 2018, 70.04% of export
increased profit expectations for oil and gas companies. turnover was generated by FDI enterprises. These enterprises
With a large capitalization in the market, the price of stocks are rarely listed on the Vietnam stock exchange. In addition,
in the oil and gas industry increased, raising the VN-Index the relationship between these enterprises and Vietnamese
in the short term. The negative impact of oil prices on the enterprises was very weak and unchanged from the period
profits of other industries can be mitigated in the short term 2010–to 2017 (Tuan, 2021). Therefore, this beggar-thy-
as the Vietnamese government tends to stabilize gasoline neighbor effect is not reflected in the VN-Index. Besides,
prices in the short run. Recently, when the world oil price when the cause of the increasing exchange rate, or the
increased due to the Russia-Ukraine conflict, the Ministry depreciation of the local currency, comes from the instability
of Finance proposed to reduce the environmental protection of the economy and concerns about future inflation, factors
tax on gasoline prices as a typical example of this policy. often negatively affect stock prices, the correlation between
Therefore, in the short term, the positive impact of rising oil exchange rate and the stock price will be negative. This is
prices on petroleum companies is usually more significant also the result of the ARDL model in this study. This result
than the negative impact on other industries. However, such is also often found in previous studies on Vietnam, such as
stabilization policies can only be maintained for a limited that of Kieu and Diep (2013), Phong and Bach Van (2015),
 Hoang Tuan DAO, Le Hang VU, Thanh Lam PHAM, Kim Trang NGUYEN /
Journal of Asian Finance, Economics and Business Vol 9 No 5 (2022) 0285–0294 293

Loc (2014), Nguyen and Nguyen (2019), Nhu Quynh and Geetha, C., Mohidin, R., Chandran, V. V., & Chong, V. (2011). The
Huong Linh (2019), and Trinh and Linh Dan (2020). relationship between inflation and stock market: Evidence from
The money supply variable, M2, has a positive effect Malaysia, United States, and China. International Journal of
on the VN-Index in both long-term and short-term models. Economics and Management Sciences, 1(2), 1–16. http://www.
sciepub.com/reference/214530
This is consistent with most of the domestic and abroad
empirical studies. The expanding money supply creates González, M., Nave, J., & Rubio, G. (2018). Macroeconomic
a liquidity effect and raises demand for financial assets, determinants of stock market betas. Journal of Empirical
including stocks. Finance, 45, 26–44. https://doi.org/10.1016/j.jempfin.2017.
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The interest rate variable has a negative effect on the
VN-Index in the short term. This is consistent with the Kieu, N. M., & Diep, V. N. (2013). Relationship between
expected results and the same as the domestic and inter- macroeconomic factors and the stock market fluctuations:
national empirical evidence. This variable has a negligible Empirical evidence from the Vietnam stock market, Science
and Technology Development Journal, 16(3), 86–100. http://
positive effect on the VN-Index in the long run. This effect is
stdj.scienceandtechnology.com.vn/index.php/stdj/article/
also not statistically significant. view/1631
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