An analysis on the relationship between monetary variables and stock return case study in Vietnam

Abstract

The thesis explores the relationship between monetary variables and stock returns in Vietnamese Stock Market during the period from 2006 to 2010 and in each sub-period by employing Vector Autoregression Model. Monetary variables consist of the interest rate, the change in the interest rate, the exchange rate and the change in the exchange rate. The uptrend of the market is shown in the sub-period one whereas the downtrend of the market is illustrated in the sub-period 2. Both the interest rate and the foreign exchange rate are nonstationary at level whereas the VN-Index is stationary at level. Unidirectional causality has been found between the exchange rate and VN-Index over the sub-period one and two meanwhile there is an existence of bilateral causality between the interest rate and the equity returns not only in the general period but also in the sub-period two. In general, there is a negative relationship between the interest rate and VN-Index; between the change in the interest rate and VN-Index.