COVID- 19 Pandemic
4. Results
4.1. Summary Statistics
Table 2 presents the descriptive statistics of the index returns from three markets in our data set. The full sample, before the pandemic and during the pandemic periods are reported in three separate panels.
Table 2. Descriptive statistics
Variables Observations Mean Standard
deviation Min Max
Full sample period
ReturnVN,t 914 0.0005368 0.010469 ‒0.0667 0.0498
ReturnUS,t 914 0.0006096 0.0125379 ‒0.1198 0.0938
ReturnChina,t 914 0.0002333 0.0086089 ‒0.0772 0.0571
Pre- pandemic period
ReturnVN,t 253 ‒0.0005379 0.0070749 ‒0.0628 0.0168
ReturnUS,t 253 ‒0.0002206 0.0100826 ‒0.076 0.046
ReturnChina,t 253 ‒0.0000198 0.0091104 ‒0.0772 0.0315 During- pandemic period
ReturnVN,t 661 0.0009481 0.0114843 ‒0.0667 0.0498
ReturnUS,t 661 0.0009274 0.013352 ‒0.1198 0.0938
ReturnChina,t 661 0.0003301 0.0084142 ‒0.045 0.0571
Source: Authors’ calculations
As can be seen from Table 2, the US stock percentage returns before the pandemic ranges from a minimum value of ‒0.076 to a maximum value 0.046 with the mean value equals to ‒0.0002206 and a standard deviation of 0.0100826. The China stock return ranges from a minimum value of ‒0.0772 to a maximum value of 0.0315 with a mean equal to ‒0.0000198 and a 0.0091104 standard deviation. The Vietnam stock index return ranges from a minimum value of ‒0.0628 to a maximum value 0.0168 with a ‒0.0005379 mean value and a standard deviation of 0.0070749.
59 Impact of Developed Stock Markets on Vietnam Stock Market
Looking at the during the pandemic panel, the US stock index return ranges from a minimum value of ‒0.1198 to a maximum value 0.0938 with a mean equal to 0.0009274 and a standard deviation of 0.013352. The China stock return ranges from a minimum value of ‒0.045 to a maximum value of 0.0571 with a mean equal to 0.0003301 and a standard deviation of 0.0084142. The Vietnam stock index return ranges from a minimum value of ‒0.0667 to a maximum value 0.0498 with a mean equal to and 0.0009481 and a standard deviation of 0.0114843.
Through the descriptive statistics, the standard deviation of the US and Vietnam increased while China received an inconsiderable decline which supposes that the return of the US and Vietnam stock markets’ volatility is stronger during the COVID- 19 period. The same is also true for the US’ while the volatility of China stock return seems to decline faintly during this period.
The results indicate that there might be a change that had a statistically significant effect on Vietnam stock market from the US and Chinese stock markets prior to and during the pandemic periods.
4.2. Linear Regression Results
Contagion is characterized as a large increase in correlations prior to and during a crisis. Hence, in this section we investigate the contagion effects from stock markets in the US and China on Vietnam stock market by comparing the coefficients from the linear regressions of (2) and (3) from pre- pandemic and during- pandemic subsamples.
Table 3. The coefficients of the impacts of the US and China stock markets on Vietnam stock market
Variables Coefficients p value
Pre- pandemic period
ReturnUS,t 0.1745077 0.000
ReturnChina,t 0.2532348 0.000
During- pandemic period
ReturnUS,t 0.2027822 0.000
ReturnChina,t 0.3398672 0.000
Source: Authors’ calculations
Table 3 shows the regression results of (2) and (3) which are corresponding to the before and during the COVID- 19 pandemic periods. Looking at the first panel of Table 3, the coefficient value of ReturnUS,t is 0.1745077 and statistically
Dat Thanh Nguyen & Long Ha Hoang Nguyen 60
significant at 1 % level. This means if the SP500 index return increases by one percentage point, the VN index return increases by 0.1745077 percentage point.
Similarly, there is a statistically significant positive effect of the Shanghai SE A- Share index return on the VN index return. The coefficient value is 0.2532348 and significant at 1 % confident level. In other words, one percentage point increase in China stock market index returns leads to a 0.2532348 percentage point increase in VN index return.
Next, we examine the impacts of the US and China stock markets on Vietnam stock market during the pandemic subsample. Similar to those in the pre- pandemic panel, the two coefficients are statistically significant at 1 % level.
The value of ReturnUS,t coefficient is 0.2027822 which means when the US stock market index increase by one percentage point the VN index return increases by 0.2027822 percentage point. In addition, the value of ReturnChina,t coefficient is 0.3398672 which means when the China stock market index increase by one percentage point the VN index return increases by 0.3398672 percentage point.
Several interesting results can be spotted via these regression results. First, the correlation of the US and China stock market indices is consistently positive and statistically significant in both panels, namely pre- pandemic and during- pandemic. Second, the correlation coefficients of the two big markets with Vietnam stock market are stronger during the pandemic than those before the WHO marked COVID- 19 as a pandemic. This evidence seems to suggest health crisis, such as COVID- 19 pandemic, can be a source of a global financial contagion.
4.2. VAR- Granger Causality Test
Following previous literature, for example, Andriosopoulos et al. (2017), Forbes and Rigobon (2002), Hon et al. (2004), Mollah et al. (2016), and Nguyen et al.
(2021), the examination of the contagion effect is proceeded by testing the VAR- Granger causality between the three stock markets in pre- pandemic and during- pandemic periods. To capture the possible autocorrelation in the trading pattern, 05 lags are selected for the VAR specified in (4) and (5). As mentioned above, we use five lags, which are corresponding to five business days of the week, in order to capture the possibility of autocorrelation in the trading pattern. Table 4 summarizes the findings of the Granger causality tests.
61 Impact of Developed Stock Markets on Vietnam Stock Market
Table 4. Granger causality test results
Equation Excluded Chi2 p
value Pre- pandemic period
ReturnVN t, ReturnUS t, 22.614 0.000
ReturnVN t, ReturnChina t, 6.4303 0.267
During- pandemic period
ReturnVN t, ReturnUS t, 2.4056 0.791
ReturnVN t, ReturnChina t, 9.6592 0.085
Source: Authors’ calculations
Table 4 presents the Chi2 value and p value from the test with the null hypothesis of no causation from the two big stock markets to Vietnam market.
The first panel provides the results for pre- pandemic period and the second one provides the results for during- pandemic period. Some interesting observations standouts. The Granger causality test suggests that, before the COVID- 19 pandemic there is a causation relation from the US stock market to Vietnam stock market. Besides, the findings indicate that prior to the pandemic, China stock market does not Granger cause Vietnam stock market. However, these relations are reversed during the pandemic sample period. The US stock market causes Granger for the Chinese stock market, but the Vietnamese stock market does not. These findings suggest that the COVID- 19 pandemic may cause a financial contagion between China and Vietnam.
The contagion effect generated by COVID- 19 pandemic spread from China to Vietnam can be explained by the fact that China is one of Vietnam’s main and largest export markets for electronic components, textiles, but especially agricultural products since Vietnam is one of the most agricultural nations in the world which annually produces and provides a large amount of agricultural product. As a country of billions of people with the most developed economy, when the COVID- 19 epidemic broke out, China was extremely severely affected and so were other countries, especially Vietnam in exports and followed by its stock market.
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