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Archives of Business Review – Vol. 8, No.12

Publication Date: December 25, 2020

DOI: 10.14738/abr.812.9494.

Pham, H., Lin, C., Chan, S. (2020). The Effect of Macroeconomic Conditions on the Performance of Vietnamese Stock Market. Archives

of Business Research, 8(12). 73-82.

The Effect of Macroeconomic Conditions on the Performance of

Vietnamese Stock Market

Hien-Ly Pham

Global Master of Business Administration, Southern

Taiwan University of Science and Technology, Taiwan;

Ching-Chung Lin

Department of International Business, Southern Taiwan

University of Science and Technology, Taiwan;

Shih-Ju Chan

Department of Tourism Management,

Kao-Yuan University, Taiwan;

ABSTRACT

Vietnam plays an important role in the global supply chain. As one of

important emerging markets, many studies have focused on Vietnam- related issues. Vietnam established two stock markets in 2000s. The

market performance becomes one of interesting issues to explore. This

study is to investigate the impact of macroeconomic variables,

including inflation rate, exchange rate, interest rate, imports, exports,

and gold price, on Ho Chi Minh stock market. The study period is from

July 2000 to October 2014. Using the monthly data collected from

Vietnam General Statistic Office, IMF International Financial Statistics,

and Ho Chi Minh stock exchange, the empirical findings of our

regression model show that there exists a positive relationship for

imports and gold price, while the relationships for exchange rate and

interest rate are negative. No significant relationship has been found

for the variables of inflation rate and exports.

Keywords: Exchange Rate; Inflation; Interest Rate; Stock market; Vietnam

INTRODUCTION

Stock market is one of important economic ingredients of a country. It also plays a pivotal role in

industrial growth and economy development. That is the reason why governmental institutions,

industries, companies, and investors keep a close watch on what happens in stock market.

Vietnam stock market was established in 2000 with the operation of Ho Chi Minh City stock

exchanges (HoSE) on July 20th, 2000 and Hanoi Stock Exchange (HNX) on March 8th, 2005. Before

that, HNX operated as the Stock Exchange Central Organization in the form of a unit under the State

Stock Commission’s possession. To go public in these two markets, the different requirements of

initial public offerings (IPO) are shown in Table 1.

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Archives of Business Research (ABR) Vol 8, Issue 12, December-2020

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LITERATURE REVIEW

The core macroeconomic variables, including inflation, industrial production index, interest rate,

gross domestic product, export, exchange rate, money supply, foreign exchange reserves and

unemployment, have causality with prices index of stock exchange [3, 4]. Adam [5] concludes that

fluctuations in macroeconomic variables, which lead to the change the structure of stock exchange

index. The government fiscal and monetary policies have a greater influence on the economic

activities and stock prices of a country [6]. This study focuses on the following six factors: inflation,

exchange rate, interest rate, import, export, and gold price.

Inflation

Numerous studies have examined the impact of inflation on stock returns. Inflation seems to affect

stock prices, but the relationship between unexpected inflation and stock prices is unclear. While

some early studies such as Fama and Schwert [7], Schwert [8], and Fama [9] find a significant

negative relationship between stock market and inflation, other studies, such as Pearce and Roley

[10], find no significant relationship between two variables. Since the relationship between

inflation and stock prices is not clear, it is important for researchers to find out the interaction.

There are many recent studies using international markets to examine the impact of inflation on

stock performance. Sangmi and Hassan [11] investigate how macroeconomic variables affecting

the stock price in Indian stock market and find that macroeconomics are considered as important

factors for investing in India, it is proved that macroeconomics bring significant impact to the stock

price. From the Sensex and Nifty (the indices of Indian stock market). They argue that increases in

inflation lead to higher stock prices and higher returns. Admad et al. [12] conclude that there exist

a positive relationship between inflation and stock market, using data in China and India. However,

Udoka et al. [13] show that there is no significant relationship between inflation and the volume

of shares traded in Nigerian stock market.

Inflation

The existence of a relationship between stock prices and exchange rate has received considerable

attention. Early studies (ex. [14]) in this area consider only the correlation between exchange rate

and stock return, and conclude that the exchange rate and interest rate are the determinants in the

stock prices.

Sangmi and Hassan [15] find that increasing in exchange rate causes lower price of Indian stock,

and hence, lower return. Ali et al. [16] find that there was no significant relationship between

exchange rate and Pakistan Karachi stock exchange price.

Besides, Agrawal et al. [17] find that the correlation between Indian Nifty index returns and

exchange rates is negative. Their further investigation into the causal relationship between the two

variables using Granger Causality test highlights unidirectional relationship between Nifty returns

and exchange rates.

Interest Rate

Admad et al. [18] observe the impacts of interest rate and exchange rate on stock return in Pakistan

market. The data is collected from the State Bank of Pakistan and Karachi Stock Exchange over

period of 1998-2009 on yearly basis. Their regression analysis shows that the change in interest