Tóm tắt Luận án The impact of monetary policy on Vietnamese stock market

Nội dung tài liệu: Tóm tắt Luận án The impact of monetary policy on Vietnamese stock market

1. MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY DANG THI QUYNH ANH THE IMPACT OF MONETARY POLICY ON VIETNAMESE STOCK MARKET SUMMARY OF PHD THESIS MAJOR: FINANCE – BANKING CODE: 62.34.02.01 SUPERVISORS: ASS. PROF. DO LINH HIEP ASS. PROF. HA THI THIEU DAO Hochiminh City, 2018
2. 1 Summary The stock market is a channel for mobilizing medium to long-term capital for the economy and is an investment channel which attracts the attention of the authorities, domestic and foreign investors. Vietnam’s stock market has experienced over 16 years of establishment and development. There were periods when the stock market grew too fast (especially in the period of 2006 - 2007), only totake the plunge in 2008-2009, which affected investors, securities companies and financial services providers. The volatility of the stock market is subject to many factors among which are the macroeconomic factors, especially the central bank's monetary policy which plays an important role. This dissertation was conducted to study the impact of monetary policy on the stock market during the period 2002 – 2016 using monthly time data collected from reliable sources. Specifically: (i) study the impact of monetary policy (money supply, interbank interest rate) on the stock market in Vietnam (measured by VN-Index); (ii) study the impact of monetary policy (money supply, interbank interest rate) on Vietnam’s stock market liquidity (measured by 4 characteristics). The regression models used are the SVAR and VAR models based on the Eviews 8.0 software, and the research results show that: (1) During the study period, the relaxing (tightening) of monetary policy by the SBV had the effect of increasing (decreasing) stock price immediately after 2 months and lasting up to 6 months later. The variance decomposition shows that from January 2002 to December 2007, the impact of monetary policy on the stock market was not as strong as in the period from January 2008 to December 2016. (2) In addition, when SBV relaxes (tighten) the monetary policy by increasing (decreasing) the money supply, the liquidity of Vietnam stock market increases (decreases). The results of variance decomposition show that the money supply and interbank rates explain 8% - 10% of volatility of liquidity (or illiquidity) after a period of 9-12 months . The remaining variables explain 6% - 9% volatility of liquidity variables in shorter windows (only 3 months). (3) Indicating the impact of monetary policy on stock prices: when SBV increases the total means of payment (or money supply), this reduces the mobilizing interest rate of commercial banks, making investment in securities more appealing and shooting up the demand for shares. In addition, falling interest rates also reduces the cost of borrowing from businesses, thereby stimulating businesses to increase investment, expanding production and profit is expected to increase and so do stock prices.
3. 2 CHAPTER 1:INTRODUCTION 1.1. Research topic Nowadays, most individuals are directly or indirectly involved in the stock market. In deciding which stocks to buy or sell, investors need to estimate the expected rate of returns as well as the risk in investing in each stock. Meanwhile, companies that raise capital from the sale of shares to the public need to decide what price to sell at and how many stocks to sell. Policymakers need to understand the mechanism of the impact of changes in monetary policy management to the stock market, thereby accommodating the objective of stabilizing the stock market with their existing objectives. Research by Bernanke and Gertler (2000) suggests that policymakers should maintain the stability of commodity prices in the economy to avoid impacting stock prices significantly. In order to find out which major factors have impact on the Vietnam’s stock market, there are a number of research topics carried out in different periods with different approaches. The studies of Nguyen Son (2003), Dang Van Hai (2007), Hoang Xuan Que (2007), Tran Trong Triet (2008), Nguyen Thi Mui (2009), Le Hoang Nga (2009), Tran Hoang Ngan, 2009), VAFI (2012), Doan Ngoc Hoan (2013) ... have shown that short-term macro factors have certain impacts on the stock market. In addition, longer- term quantitative studies also show that macro variables such as inflation, exchange rates, money supply, interest rates and industrial output have important impacton stock prices, rate of return or liquidity of markets (Tran Thi Xuan Anh and Ngo Thi Hang (2012), Phan Dinh Nguyen and Ha Minh Phuoc (2012), Phan Thi Bich Nguyet and Pham Duong Phuong Thao (2013), Nguyen Huu Huy Nhat (2013), Than Thi Thu Thuy and Vo Thi Thuy Duong (2014), Tran Thi Hai Ly (2015), Le Dat Chi (2015) ...). At present, the Vietnam’s stock market has developed vigorously with remarkable growth and is considered one of the top five markets in the world as stock prices have returned to the peak achieved in 2007. However, there is no research on whether such development is stable and affected by macroeconomic factors, especially from the management of monetary policy of the State Bank of Vietnam has impact on the market development. The thesis entitled "The Impact of Monetary Policy on the
4. 3 Stock Market" was conducted to clarify this issue, helping policymakers and investors to unfold the impact of monetary policy on the price and liquidity of the stock market, thus devising appropriate operational policies and investment strategies. 1.2 Overview of the literature (domestic and international studies) Research on the impact of monetary policy on the stock market has been carried out since the 1970s (Rozeff, 1974; Pesando, 1974; Auerbach, 1976). The studies on the impact of monetary policy on the stock market across countries in the world have been conducted with different approaches. The first approach is to study the impact of monetary policy on the stock market, which considers the role of the stock market as a channel to convey the influence of the monetary policy on the economy. Mishkin (2001), Cosimano et al. (1999), Ehrmann and Fratzscher (2004), Berument and Kutan (2007) are typical studies of this type. The second approach is to study the reaction of stock prices to the announcement of the change in operating interest rates or money supply. Under this approach, researchers often use event study methodology with high frequency (day or week) data to gauge the immediate impact of monetary policy announcementson the stock market price. A third approach is to use a regression model using monthly or quarterly data to assess the short- and long-term effects of monetary policy – related variables on stock prices (or returns ) and liquidity of the stock market. The results of previous studies in the 1990s (Pesando, 1974; Rozeff, 1974; Rogalski and Vinso, 1977; Darrat, 1990) show that changes in monetary policy (money supply or interest rates) do not Granger cause the changes in share price (or return). This approach is also widely adopted in the context of emerging markets such as Tang et al. (2013) in China, Abaenewe and Ndugbu (2012) in Nigeria, Seong (2013) in Singapore, Yoshino et al. (2014) in South East Asian countries ... Most of the findings show that the shocks to monetary policy affect the stock price or the rate of return in the stock market: The tightening effect of monetary policy on stock prices is negative and vice versa. Domestic studies have been conducted mainly using the third approach, such as Nguyen Huu Tuan (2011), Phan Dinh Nguyen and Tang Trang Chau (2013), Nguyen Minh Kieu and Nguyen Van Diep (2013), Phan Thi Bich Nguyet and Pham Duong
5. 4 Phuong (2013), Bui Kim Yen and Nguyen Thai Son (2014), Duong Ngoc Mai Phuong and Vu Thi Phuong Anh (2015), Than Thi Thu Thuy (2015). However, in general these studies only assess the impact of macro factors on the stock market without examining the impact of monetary policy on stock prices and liquidity of the market. 1.3 Objectives and research questions a. Research objectives + Determine the direction of the impact of monetary policy on share price and liquidity of Vietnam’s stock market. + Determine the impact of monetary policy - related factors on stock prices and liquidity of the Vietnam’s stock market. + Clarify the mechanism of impact of monetary policy to share price and liquidity of Vietnam’s stock market + Make recommendations for policymakers to support the development of the stock market and for investors to increase profits, reduce risks. b. Research questions + Does the monetary policy affect stock prices in Vietnam stock market? If so, what is the direction and magnitude of the impact of monetary policy factors on the stock market in Vietnam? + Does the monetary policy affect the liquidity of the Vietnamese stock market? If so, how are the trends and magnitude of the impact of monetary policy factors on market liquidity? + What is the impact of monetary policy on stock prices and liquidity of the stock market? + What are the recommendations for policymakers to support the development of the stock market? 1.4 Object and scope of the study Research objectives: The impact of monetary policy on Vietnam stock market with regard to two aspects which are stock price and market liquidity.
6. 5 Research scope: + Space: The stock market referred is the trading exchange of HOSE (HSX) + Time: study the impact of monetary policy on the Vietnam’s stock market from January 2002 to December 2016, with information collected from reliable sources such as SSC, HOSE, Hanoi Stock Exchange, SBV, IFS, ARIC and some websites such as Cafef, Stox Plus. 1.5 Research methodology The dissertation uses quantitative research methods in combination with qualitative analysis to achieve research objectives. To address question 1, the thesis uses the structural vector autoregressive (SVAR) model with structured shocks based on the studies of Lütkepohl (2005), Kim (1999), Kim and Roubini (2000), Ben Naceur et al. (2007) and add exogenous variables to suit the reality of the Vietnamese stock market. To address question 2, the thesis utilizes a vector autoregressive model (VAR) based on the research model of Chordia and ctg (2005), Lu-Andrews and Glascock (2010), Fernández-Amador and ctg (2013). Basing on the results of these two models and combining with the qualitative method, the dissertation strives to analyze the implementation of monetary policy by SBV in reality, the evolution of the development of the Vietnam’s stock market, thus indicating the mechanism of impact of monetary policy on the stock market and providing some policy recommendations to the authorities and investors. 1.6 The scientific and practical contributions of the thesis a. Scientific contribution In the Vietnam’s stock market, although there are many studies on the impact of macro variables on the stock market, there have been no studies on the single impact of monetary policy on stock prices and market liquidity. This study was conducted over a long period of time, including the period of strong growth, recession and recovery. In addition, the study also shows the impact of monetary policy on the development of
7. 6 the Vietnamese stock market, in terms of the extent and direction of those effects. The results of the study are based on empirical verification through the SVAR and VAR models, ensuring reliability so that they can be used for future research not only in updating theories but also comparing results of extant studies. b. Practical contribution Research shows that the increase (decrease) of money supply has the effect of increasing (decreasing) stock prices as well as liquidity of the stock market. This helps the policymaker see the mechanism of impact of monetary policy to the stock market, thus developing policies suitable to the conditions of the economy as well as supporting the development of the stock market. Investors can use research results as a reference for making investment decisions in accordance with each stage of the economy as well as the monetary policy administration of SBV. 1.7 New findings from research results In the periods of expansion (tightening), the monetary policy has the effect of increasing (decreasing) stock prices in the stock market immediately after 2 months and lasting up to 6 months thereafter. VNI reacted in the same direction to the increase in money supply and in the opposite direction to the rise of interbank rates. VNI's reaction to the change in money supply is stronger than that in interbank rates. The variance decomposition shows that from January 2002 to December 2007, the impact of monetary policy on the stock market was not as strong as in the period from January 2008 to December 2016. VNI has reacted quite strongly to the shock in consumer price index, particularly VNI started falling from the first month of the CPI shock and reached a new equilibrium level of 6% fall after 3 periods. In addition, the SBV’s loosening (tightening) monetary policy by increasing (decreasing) money supply tends to increase (decrease) the liquidity of the stock market. The results of variance decomposition show that the money supply and interbank rates explain 8% - 10% volatility of liquidity (or liquidity) after a period of 9-12 months. The remaining variables explain 6% - 9% of the volatility of liquidity variables in shorter windows (only 3 months).
8. 7 The research has shown the mechanism of impact of monetary policy to share price and liquidity of Vietnam stock market. In particular, the increase in money supply by the SBV has reduced the market interest rates and reduced the cost of debt to businesses, thereby increasing profitability for listed companies. At the same time, the reduction in interest rates also increases the demand for shares from investors, thus increasing the stock price and increasing the value of stocks traded on the stock market. 1.8 Structureof the dissertation The dissertation comprises of 5 chapters as follows: Chapter 1: Overview of research topic Chapter 2: Theories on the impact of monetary policy on the Stock Market Chapter 3: Modeling and Research Methods Chapter 4: Research Results and Discussion Chapter 5: Conclusions and policy recommendations
9. 8 CHAPTER 2 THEORIES ON THE IMPACT OF MONEY POLICY ON THE SECURITIES MARKET 2.1 Concepts related to the topic 2.1.1 Monetary policy Monetary policy (MP) is a process by which the central bank uses tools to regulate money supply, credit, and interest rates in the economy in an attempt to ensure the stability of monetary value, economic growth and employment (Mishkin, 2013). The tools under the discretion of MP are compulsory reserves, open market operations, discount policy, interest rates, exchange rates. 2.1.2 Securities market The stock market is the place where exchanging, trading and transfering of medium to long-term securities are held, thereby changing the owners of securities. Basically stock market is the operating process of capital. This is the place to buy and sell the property rights related to capital and is a form of advanced development of goods production. A stock price index is an indicator that reflects the change of stock prices at a time compared to the original price. Stock price indexes are the most important information in the market and are often used by investors in stock investment analysis (Nguyen Dang Nam, 2006). 2.2 Impact of monetary policy on the stock market 2.2.1 Impact of monetary policy on stock prices According to Brunner's monetary theory of monetary volume (1961), Friedman and Schwartz (1975) monetary policy can influence stock prices by choosing the investment portfolios: MS ↑ → due to the effect of wealth effect → stock demand ↑ → stock price ↑
10. 9 Basing on Gordon's dividend discount model (1962), Patelis (1997) suggested that MP could influence stock prices in two ways. The first way is to directly influence the stock price by affecting the interest rate expected by investors. The second way is to indirectly influence the stock price by affecting the expected return of the company in the future, thereby affecting the expected dividend. MS ↑ → r ↓ → SP ↑ (direct impact) MS ↑ → r ↓ → Y ↑, CF ↑ → SP ↑ (indirect effect) According to the efficient market theory (Fama (1970)):in a medium-efficient market shows that changes in the expectation of money supply are included in the published information, thus having no value in stock price forecasts. MS ↑ out of expectation → inflation ↑ expected → r ↑ → Y ↓, CF ↓ → SP ↓ MS ↑ out of expectation → future tightening monetary policy expected → r ↑ → Y ↓, CF ↓ → SP ↓ MS ↑ out of expectation → policy uncertainty ↑ → risk increase → SP ↓ 2.2.2 Impact of monetary policy on stock market liquidity Concept of stock market liquidity: The stock market is considered to have good liquidity if the following conditions are met: (i) there is always an ask price and offer price so that investors can trade immediately; (ii) the difference between the ask price and the bid price is marginal; (iii) investors can buy large amounts of securities immediately with low transaction costs. According to Baker (1996), market liquidity features include: instantness, breadth, depth and elasticity. Impact of monetary policy on stock market liquidity: According to O'hara's (1995) micro-market structure theory, the liquidity of each stock depends on the characteristics of the stock and the trading mechanism in the market. Monetary policy can influence the liquidity of stocks in the market througheasing (or tightening) monetary policy whichwill reduce (or aggravate) margin borrowing, thereby increasing (decreasing) capital liquidity of market participants. 2.3 Related studies 2.3.1 Overseas studies