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http://dx.doi.org/10.13106/jafeb.2020.vol7.no12.095

Linkage Between Exchange Rate and Stock Prices: Evidence from Vietnam  

DANG, Van Cuong (School of Public Finance, University of Economics Ho Chi Minh City)
LE, Thi Lanh (School of Finance, University of Economics Ho Chi Minh City)
NGUYEN, Quang Khai (School of Banking, University of Economics Ho Chi Minh City)
TRAN, Duc Quang (School of Finance, University of Economics Ho Chi Minh City)
Publication Information
The Journal of Asian Finance, Economics and Business / v.7, no.12, 2020 , pp. 95-107 More about this Journal
Abstract
The study investigates the asymmetric effect of exchange rate changes on stock prices in Vietnam. We use the nonlinear autoregressive-distributed lag (ARDL) analysis for monthly data from 2001:01 to 2018:05, based on VN-Index stock price collected from Ho Chi Minh Stock Exchange (HOSE); the nominal exchange rate is separated into currency depreciation and appreciation through a partial sum decomposition process. Asymmetry is estimated both in the long-run relationship and the short-run error correction mechanism. The research results show that the effect of exchange rate changes on stock prices is asymmetrical, both in the short run and in long run. Accordingly, the stock prices react to different levels to depreciation and appreciation. However, the currency appreciation affects a stronger transmission of stock prices when compared to the long-run currency depreciation. In the absence of asymmetry, the exchange rate only has a short-run impact on stock prices. This implies a symmetrical assumption that underestimates the impact of exchange rate changes on stock prices in Vietnam. This study points to an important implication for regulators in Vietnam. They should consider the relationship between exchange rate changes and stock prices in both the long run and the short run to manage the stock and foreign exchange market.
Keywords
Stock Prices; Exchange Rates; Asymmetric; Nonlinear ARDL;
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Times Cited By KSCI : 4  (Citation Analysis)
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