Analyzing the Impact of Oil Price Fluctuations on Vietnam Stock Market

Analyzing the Impact of Oil Price Fluctuations on Vietnam Stock Market

Huynh Viet Khai (Can Tho University, Vietnam), Le Minh Sang (Can Tho University, Vietnam) and Phan Thi Anh Nguyet (Can Tho University, Vietnam)
Copyright: © 2018 |Pages: 17
DOI: 10.4018/978-1-5225-4032-8.ch010

Abstract

This chapter covers a study that was conducted to find out the impact of crude oil prices on the Vietnam stock market in the period from March 2006 to June 2015 by using the autoregressive-distributed lag (ARDL) model with dummy variables of the economic crisis. The results revealed that the crude oil prices had positive impacts on VN-Index and HNX-Index in short-run, but negatively in long-run. In addition, the study also found that the economic crisis has affected the relationship between the crude oil prices and the stock market index in the short-run. During the crisis period, the crude oil prices related to the VN-Index and HNX-index more closely than the other stages. However, in the long-run the relationship between oil prices and stock market index was not affected by the economic crisis.
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Introduction

Since the existence of oil, one of the most important commodities, is crucial for the world’s economy, a change in the price of oil has a significant and large impact on the economy. A high variation of the oil price, in other words the sharp decreases and increases in price, can be seen as high price volatility. This high volatility makes oil one of the major macro-economic factors which create an unstable economic condition for countries around the world (Olivia, 2011). Oil price volatility has an impact on both oil-exporting and oil-importing countries. For oil-importing countries, an increase in the oil prices influences their economy negatively. When the price rises, they will experience harmful impacts such as increase in inflation and economic recession (Ferderer, 1996). On the other hand, the oil-exporting countries are positively correlated to the increase in oil prices. However, a decrease in the oil price exhibits a negative relationship with the economic development and it creates some political and social instability (Yang and Huang, 2002).

Oil price obviously influences the country’s economy; the question is how does it effect on stock price on Stock Exchange Market? As stock price on the market is known as the mirror which reflects all changes in the economy, each impact on macro economy somehow influences to stock price on Stock Exchange market. Therefore, whenever fuel price effects on the economy, it makes stock price fluctuate. A large body of academic literature has explained the relationship of oil price and stock price on Stock Exchange Market. Kaul and Seyhun (1990) and Sadorsky (1999) elucidated that the higher oil price volatility tended to cause negative effect on stock market price. Jones and Kaul (1996) indicated that international stock price was not affected by oil shocks. The following study of Huang et al (1996) provided evidences which supported the cause and effect of petroleum price and stock price. Narayan and Narayan (2010) estimated the impact of oil prices on Vietnam’s stock prices using daily data for the period 2000–2008 and include the nominal exchange rate as an additional determinant of stock prices. The study found that stock prices, oil prices and nominal exchange rates are cointegrated, and oil prices have a positive and statistically significant impact on stock prices. These diverse impacts and differences can be explained by the differences in importing and exporting petroleum in each country.

Vietnam, an emerging country, is both crude oil exporter and refined- oil importer for domestic use. Vietnam’s stock market has grown rapidly in the period of 2000-2008, but has decreased sharply due to economic crisis in the period of 2008-2012. The world’s economy is influenced by economic crisis in the period of 2008 and 2012, thus, how this economic crisis affects the relationship of oil prices and Vietnam stock market prices? To answer this question, the study is to examine the relationship between VN-index, HNX-index and world crude oil price from August 2006 to June 2015. The study is to hopefully bring the most accurate overview or whole picture in terms of the correlation of the world oil price and stock market returns on Vietnam stock exchange market in the periods of economic development and recession.

This article is constructed as follows. Section two concentrates on the literature over past works regarding oil price volatility. All the data used are described in section three and methodology in section four. This paper applied the approach of Autoregressive-Distributed Lag (ARDL) to recognize the dynamic relationships between the economic variables. All results and discussion of the analysis are presented and discussed in section five. The final section presents some main conclusions of the study.

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