A Nonlinear Autoregressive Distributed Lag (NARDL) Analysis on the Determinants of Vietnam's Stock Market

This study examines the impacts of some macroeconomic factors, including exchange rate, interest rate, money supply and inflation, on a major stock index of Vietnam (VNIndex) by utilizing monthly data from April, 2001 to October, 2017 and employing Non-linear Autoregressive Distributed Lag (NARDL) approach introduced by Shin et al. [33] to investigate the asymmetric effects of the aforementioned variables. The bound test verifies asymmetric cointegration among the variables, thus the long-run asymmetric influences of the aforesaid macroeconomic factors on VNIndex can be estimated. Besides, we apply Error Correction Model (ECM) based on NARDL to evaluate the short-run asymmetric effects. The findings indicate that money supply improves VNIndex in both short-run and long-run, but the magnitude of the negative cumulative sum of changes is higher than the positive one. Moreover, the positive (negative) cumulative sum of changes of interest rate has negative (positive) impact on VNIndex in both short-run and long-run, but the former’s magnitude exceeds the latter’s. Furthermore, exchange rate demonstrates insignificant effects on VNIndex. Also, inflation hampers VNIndex almost linearly. This result provides essential implications for policy makers in Vietnam in order to successfully manage and sustainably develop the stock market.