tailieunhanh - Relationship between volatilities of stock market and instruments of monetary policy in Vietnam

Volatility of stock exchange and its determinants always attract the attention of investors, researchers and exchange authorities. The research estimates the volatility of Vietnam stock market by measuring the conditional volatility of VN-Index and HNX-Index, and explores the relationship between the volatility of stock exchanges and the volatility of two instruments of monetary policy. | Tran Phuong Thao & Phan Chung Thuy. Journal of Economic Development 22(1), 82 – 99 82 Relationship between Volatilities of Stock Market and Instruments of Monetary Policy in Vietnam TRAN PHUONG THAO University of Economics HCMC - tranthao@ PHAN CHUNG THUY University of Economics HCMC - phanthuy@ ARTICLE INFO ABSTRACT Article history: Volatility of stock exchange and its determinants always attract the attention of investors, researchers and exchange authorities. The research estimates the volatility of Vietnam stock market by measuring the conditional volatility of VN-Index and HNX-Index, and explores the relationship between the volatility of stock exchanges and the volatility of two instruments of monetary policy (overnight rate and exchange rate). Data are collected on a daily basis from Jan. 5, 2006 to March 31, 2014. The research found evidence of volatility of returns through the two indexes and two instruments, but it detected no relationship between the volatilities of these instruments and the stock indexes. Additionally, the research confirms the role of VNIndex as a market maker over HNX-Index. Received: Sep. 10 2014 Received in revised form Oct. 03 2014 Accepted: Dec. 30 2014 Keywords: stock exchange, conditional volatility, exchange rate, interest rate, monetary policy. Tran Phuong Thao & Phan Chung Thuy. Journal of Economic Development 22(1), 82 – 99 83 1. Introduction Volatility, a term much referred to in the existing literature, denotes the change of a property or random fluctuation of asset prices. The volatility of stock exchange can be measured by various methods, such as the gap between the highest and lowest stock prices in a certain period of time, standard deviation reflecting stock return dispersion, or conditional fluctuations of stock prices in its relation to volatility in the previous terms (Pagan & Schwert, 1990; Schwert, 1989). In the recent decades studies of volatility of stock exchange attract .