Impacts of foreign flows on Vietnamese stock market

Abstract

The paper provides a quantitative assessment on the impacts of daily foreign flows on Vietnamese stock market return and volatility in two different sub-periods from the end of 2005 to 2011. By combining three widely-used econometric tools which are Vector Autoregressive Models, Granger Causality Tests and Impulse Response Functions, this thesis discovers several interesting points. Firstly, it is demonstrated that almost significant relationships between foreign flows and Vietnamese stock market return or volatility are just in short-term. Secondly, daily foreign gross purchases and gross sales have a positive accumulated impact on daily market return whereas foreign net purchases show no relation with market return. Thirdly, market volatility seems to be more influenced by foreign flows with more significant relations, Granger causality and impulse responses found as compared to market return. Fourthly, in contrast to market return, daily market volatility responses strongly and oppositely with shock to daily foreign net purchases in bull and bear markets, 0.88 units and -1.95 units for one- standard deviation increase in net purchases, respectively, which could illustrate how such foreign flows affect the local equity market in two different periods of time.