tiểu luận kinh tế lượng FACTORS AFFECT STOCK PRICES AT HOSE 2013 – 2017

, our team decided to explore the topic: “FACTORS AFFECT STOCK PRICES AT HOSE 2013 – 2017”, in order to analyze macro factors affecting the VN-Index stock index, thereby suggestingideas

FOREIGN TRADE UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION

Ha Noi – 09/2019

TABLE OF CONTENTS

INTRODUCTION 1

CONTENTS 2

I RESEARCH OVERVIEW 2

1 Overview of Viet Nam stock price – Index 2

1.1 Definition 2

1.2 Meaning 2

1.3 Fomulas 3

2 Previous studies on the impact of macroeconomics factors on stock prices in the atock market 3

3 Factors affecting the price of the stock used in the report 5

3.1 Inflation 6

3.2 Interest rate 6

3.3 Exchange rate 6

3.4 Money supply 7

II MODEL BUILDING 8

1 Model 8

2 Data sources 9

3 Data description of the model 10

3.1 Statistical description 10

3.2 Correlation variables 10

III STATISTICAL EVALUATION AND ANALYSIS RESULTS .11

1 Result analysis 11

2 Statistical hypothesis test 12

2.1 Expectation test 12

2.2 Inspection of statistical significance of regression coefficients 13

2.3 Calibration of model 13

3 Result demonstration 14

4 Policy proposal 14

4.1 The government 14

4.2 State bank 15

4.3 Business 15

CONCLUSION 16

APPENDIX 17

REFERENCES 19

The stock market is one of the channels for measuring a country's economicdevelopment and is considered to be effective when stock prices are quickly adjustedwhen new information is available Vietnam’s stock market officially came intooperation in July 2000, more than 17 years of knowing the ups and downs are notonly due to the psychological factor of the investor but also influenced bygovernment policy regulation, macroeconomic variables of economic economy

Therefore, analyzing the impact of macroeconomic factors on the stock market is anecessary and useful thing Thereby, we can easily introduce solutions to the negativeeffects of macroeconomic factors on the stock market as well as help to develop thestock market in accordance with the economic situation Currently, there are manyarticles, researches on the impact of macroeconomic factors on the stock market

However, in different time and conditions, the factors and the level of impact on thestock market will not be the same

With the above reasons, combined with the desire to have a deeperunderstanding of economic issues and apply theories, economic knowledge in generaland econometrics in particular have been studied , our team decided to explore the

topic: “FACTORS AFFECT STOCK PRICES AT HOSE 2013 – 2017”, in order

to analyze macro factors affecting the VN-Index stock index, thereby suggestingideas for the development and improvement of macroeconomic management andmanagement policies, contributing to improving High efficiency of stock market Theessay content consists of 3 parts:

Part I: Research overview Part II: Building modelPart III: Statistical evaluation and analysis results The report is based on the use of regression model of Econometrics to study,combine with the knowledge of macroeconomic knowledge, learn some referencesand the guidance of lecturer in Econometrics While making reports, it is difficult toavoid some mistakes or shortcomings Our team hopes to receive your comments sothat we can improve the report

We' d like to thank you!

1 Overview of VN-index stock price index

According to the Investment and Finance Dictionary, the stock priceindex is the cost of buying a stock in the market, which can be affected byvarious factors such as volatility in the market, economic conditions andreputation of the company On the other hand, the stock price index is theaverage of the prices of a set of component stocks traded on the stock market

at a given time These types of component stocks have the commoncharacteristics that are traded on the same Stock Exchange, the marketcapitalization scale is similar Thus, the stock price index is a statistical valuethat reflects the movements of the stock market Market investors and marketmanagers can adopt it to describe the market and compare the profits beforemaking investment decisions Currently, there are methods commonly used incalculating stock price indexes such as Passcher method, Laspeyres method,Fisher average price index method, simple average digital method, simplegeometric average method The VN-Index is the index that greatly influencesthe psychology of investors Therefore, we will use VN-index as the indexrepresenting the Vietnam’s stock market

1.1. Definition

VN-Index is built based on the market value of all stocks listed on the Ho ChiMinh Stock Exchange (HOSE) With this index system, investors can assess andanalyze the market in general

1.2. Meaning

VN-Index is the index of fluctuations in prices of all listed stocks andtransactions in Ho Chi Minh city’s Stock Exchange The VN-Index compares thecurrent market capitalization with the base market capitalization on July 28, 2000, thefirst day the stock market officially came into operation In other words, the VN-Index shows how many times the value of the whole HOSE has changed, whichshows us the value and scale of the HOSE changed; the fluctuations of VN-Index ineach session reflected the fluctuations of all stocks traded on the HOSE

Ex: VN-Index on October 16, 2017 was 819.43, this means that the marketvalue of all listed and traded stocks on the HOSE is 8,1943 times the base value.

- CMV: The current market capitalization

- BMV: The value of the market capitalization - is adjusted in cases such as newlisting, delisting and cases of change in listed capital

- pit: The price of stock i at the time of calculation

- qit: The listed volume of stock i at the time of calculation

- pio: The price of stock i at the base time

- qio: The listed volume of stock i at the base time

2 Previous studies on the impact of macroeconomics factors on stock prices in the atock market

Factors affecting stock prices are found in experimental studies that includemacro factors and underlying factors related to financial and operational relationships

of companies Since it is not possible to list all of the relevant studies, so we only list

a few typical studies as basis for our research

First of all, Al-qenae and collaborators (2002) In this study, the authorsmeasured the impact of the earnings per share (EPS), gross national product (GNP),interest rates and inflation on the prices of listed stocks on the Kuwait stock marketduring 1981 - 1997 Research results show that stock prices are positively correlatedwith EPS and GNP variables, but negatively correlated with interest and inflation

Tsoukalas (2003) examines the relationship between the stock price in theCyprus stock exchange and the macroeconomic factors used in the study, includingthe chain of stocks, industrial production value, CPI, money and exchange rate overthe period of time collected for the period from 1975 to 1998 Using the Ganger test,the results of the study show that the prices of stocks listed on the Cyprus stockmarket are closely related to the macroeconomic factors selected for research

Next, Al-Tamimi and his collaborators (2007) studied the factors affecting theprices of stocks listed on the UAE stock market (United Arab Emirates) This studyuses price data of 17 stocks collected between 1990 and 2005 Research results showthat earnings per share (EPS) is a factor that has a strong and positive impact on theprice of stocks The factors of money supply and GDP are also positively correlatedwith the prices of stocks but are not statistically significant In addition, this studyalso shows that the consumer price index and interest rates are inversely correlatedwith the prices of stocks listed on the UAE stock market However, only therelationship between the consumer price index and the price of stocks is statisticallysignificant.

Liu and Shrestha (2008) tested the relationship between stock prices in China'sstock market and macro factors, including industrial production value, exchangerates, inflation, money supply and interest rates This study used secondary data forall variables from January 1992 to December 2001 Using the cointegration test, theauthors found a positive correlation between stock prices and industrial productionvalue and money supply and a negatively correlation between stock prices andinflation, interest rates and exchange rates Based on the empirical evidence found,the authors recommend to investors that when they want to invest in the Chinesestock market, they should invest in the long term because in the short term theChinese stock market strongly stocks fluctuate so they are extremely risky

Hussainey and Ngoc (2009) study the effects of Vietnam's macro factors(industrial production value, consumer price index, interest rates) and the US (S&P

500 index, industrial production value, consumer price index, government bondinterest rate) to the price of stocks in Vietnam The research results show that thevalue of industrial production in both Vietnam and the US is positively correlatedwith the price of stocks in Vietnam In addition, this study found an inverserelationship between interest rates and stock prices but not statistically significant

Mehr-un-Nisa and Nishat (2012) studied the effect of corporate financialratios and macro factors on the prices of stocks listed on the Karachi Stock Exchange(Pakistan) Using the Generalized Method of Moments (GMM) on 221 companies'data between 1995-2006, the authors found a positive correlation between stock pricewith capital structures, market value ratios on the book value, EPS and the companysize Regarding the macro factors, research results show that stock prices arepositively correlated with GDP growth, money supply and financial depth Incontrast, stock prices are negatively correlated with interest rates and inflation rates

Eita (2012) studies the effects of macro factors on the prices of stocks on theNamibia stock market This study uses time data with quarterly frequency of stockprices, money supply, inflation, GDP, interest rates and exchange rates from 1998 to

2009 Consistent with the results of previous studies, this study shows that the prices

of stocks are negatively correlated with interest rates and inflation In contrast, thefactors of GDP, exchange rate and money supply are positively correlated with theprices of stocks

Aurangzeb (2012) identifies factors affecting the prices of stocks on threestock markets in the South Asia, which is Pakistan, India and Sri Lanka Data usedfor this study were collected for the period from 1997 to 2010 The results of theregression analysis show that foreign direct investment (FDI), the exchange rate arepositively correlated, while that of interest rates are negatively correlated with theprices of stocks listed on the stock exchange in South Asia In addition, the researchresults show that inflation is negatively correlated with the prices of stocks but notstatistically significant

In another study, Phan Thi Bich Nguyet and Pham Duong Phuong Thao(2013) studied the effects of some macro factors on the market price index of Ho ChiMinh Stock Exchange (VN-Index) in the period 7/2000 to 9/2011 The researchresults show that the supply factors, industrial output and world oil prices arecorrelated with the market price index In contrast, the interest rate and exchange ratevariables are inversely correlated with the change of VN-Index Especially, theauthors found a positive correlation between inflation and market price index but itwas not statistically significant

In summary, empirical studies have shown that EPS is a factor that greatlyaffects the price of stocks In addition, macroeconomic factors such as interest rates,inflation, exchange rates, money supply, GDP, industrial production value are alsofactors that have certain effects on the prices of listed stocks in the stock market Theempirical evidence found in studies conducted on the Vietnamese stock market isbasically consistent with studies conducted in emerging stock markets

3 Factors affecting the price of the stock used in the report

Inheriting the theoretical and empirical studies mentioned and in accordancewith the data in Vietnam, we have chosen 5 macroeconomic variables to consider thecorrelation with the stock market: the rate of inflation, interest rates, exchange rates,and industrial production values

3.1. Inflation

Inflation is a term used to indicate the price of goods and services increasedover time compared to a previously determined period There are many causes ofinflation, including two main causes: demand-pull inflation and cost-push inflation

For the stock market, when inflation increases, the increase in interest rateswill also increase to ensure the positive interest rates and stock market channelsbecome less attractive than the other investment channels, such as the amount of thestock and the stock - price reduction In addition, when inflation increases, thecompany's input costs will increase and the company's profit will also indirectlycause the stock to decrease

3.2. Interest rates

The interest rate is the cost that the borrower must pay for using the lender'scapital Interest rates are one of the important factors affecting the overall growth anddevelopment of the economy

When interest rates fall, there is a positive impact on the stock price index

Because lower cost of capital makes it easier for companies to raise capital toimplement investment projects, as well as reduce costs for companies using largefinancial leverage, which will improv ecorporate profits and increase the company'sstock price Conversely, when the interest rate increases will have a negative impact

on the overall operation of the economy When interest rates rise, it will increaselending rates for customers, reducing the demand for consumer spending andshopping activities As a result, it affects the production and business activities, theprofits of the company and the securities become less attractive in the market

3.3. Exchange rate

The exchange rate is the exchange rate between two currencies whereby onecurrency will be converted into another currency by a certain percentage There are 2ways to quote prices directly and indirectly, depending on each country, you willchoose the appropriate price for each foreign currency

According to economic theory, the exchange rate can impact stock prices intwo different directions When the exchange rate rises in a direct manner, the localcurrency will be lost in addition to the stable investment environment that will attractmore capital from foreign investment in the country to seek profit and price disparity.

However, on the other hand, the increase of exchange rate has a negative impact onthe stock market When adjusting the exchange rate increase will affect exports,indirectly affecting the economic growth and production activities of the companythereby affecting the company's profits, and reduces stock prices

3.4. Money supply

Money supply is the amount of money taken into the economy to meet theneeds such as payment means, the demand for storage of the hosts in the economy

Money supply measures include:

- M0: Including cash, is a part of paper money issued by the central bankcirculating outside the banking system

- M1: Including M0 and non - recurring deposits, these deposits can bewithdrawn at any time upon request, may exist under a checking or non-checking account

- M2: Including M1, savings deposits, term deposits at banks

- M3: Including m2, deposits in other financial institutions outside the bank

- L: As the widest measure , including M3, valuable securities such as treasurybills, commercial bills, and bank drafts …

If the money supply expands, it will lead to an increase in goods consumption

as well as an increase in the use of financial assets, of which securities are one Whenthe money supply increases, the outstanding liquidity will affect the stock marketquite strongly due to the impact of rapid and direct monetary policy Whenimplementing the expansionary monetary policy, the more money flowing intocirculation will reduce the lending interest rates as well as the discount interest rates

This will increase the demand for financial assets, including stocks On the otherhand, when lending rates are reduced to help reduce the discount rate of stock overthereby increasing the expected value of investors

Higher interest rates due to the impact of tight monetary policies often have anegative impact on the stock market The reason: first, to reduce the price ofsecurities by increasing the discount rate in valuation models; second, making fixedincome securities a more attractive option that reduces liquidity in stocks; third,reduce the trend of borrowing to invest in securities; and finally, increasing operatingcosts thus affecting company profits

 If the money supply increases, it means that the demand for money increases,leading to an increase in economic activity The higher economic activity means thehigher the cash flow, the higher the stock price increases, which means that theincrease in money will lead to more stable growth and growth for the stock market Industrial production value :

It is the aggregate indicator reflecting the production result of the industryproduced in a given period of time This is the basis for assessing the situation ofindustrial development of a country

When the value of industrial output has grown, this shows that the economy is

in the development stage and companies are doing business efficiently and profitably;

Increase profits for shareholders As a result, this makes the stock of the companymore attractive and the stock price of the companies as well as the stock price index

in the stock market will increase

II Building Model

1 Model

From the macroeconomic factor above, we would suggest this regressionmodel:

- The overall regression function model:

(PRF): VNIndex = β0 + β1 CPI+ β2 IR+ β3 M2 + β4 EX+ β5 IO+ ui

- Sample regression function model:

(SRF) : VNIndex = β¿0 + β¿1CPI+ β¿2IR+ β¿3 M2 + β¿4 EX+ β¿5 IO+ u¿i

Explain the variables:

No Variable

Expected sign

1 VNIndex

"Stock price index(Last day price of the last day ofthe month)"

Point

2 CPI "Consumer price index

representing inflation (month’s % %

-change in comparison with the same period of the previous year)”

"Interest rate(Average interbank interest rate for 1 month period of days in the month) "

"The money supply(months’% change in comparison with the same period of the previous year)”

Average interbank exchange rate between VND / USD (Exchange rate on the last day of the month)

- Therein:

· Dependent variables: VNIndex

· Independent variables: CPI, IR, M2, EX, IO

2 Data source