Dependence Structure of the Vietnam Stock Market on the International Stock Market

Abstract

Background: The deep and broad integration of Vietnam's economy with the world economy brings opportunities and challenges in sustainable economic development. In light of the risk of global financial crises significantly impacting the national economy, implementing a sustainable stock market development strategy has become extremely necessary. Objective: The goal was to examine the impact of Vietnam's stock market's dependence structure on the international stock market, thereby providing policy implications for a more stable and sustainable development of Vietnam's stock market. Methodology: This article examines the dependence structure between the Vietnamese stock market and international stock markets, utilising research data collected from January 2007 to December 2024 and employing the Monte Carlo simulation method. Result: The results show that during the COVID period, the level of dependence of the Vietnamese stock market on the international stock market was higher than in other periods. The results indicate that the selected copula is most appropriate for capturing the dependency structure between the Vietnamese and international stock markets. The article also calculates the value at risk using the Monte Carlo simulation method, demonstrating that an investment portfolio in the Vietnamese stock market under the negative impact of the US market has the highest risk level compared to other markets. Conclusion: The model demonstrates that the Copula function is suitable for financial market pairs. Unique Contribution: This study develops an early warning system for the financial market, playing a significant role in helping state management agencies estimate and calculate the likelihood of a crisis, understand the factors that can lead to such a situation, and enable them to react and make appropriate adjustments when the economy undergoes unfavourable changes. Key Recommendation: Based on the research results, several essential policy implications are proposed to develop an early warning system that also enables state management agencies to assess the impact of macroeconomic policies on the likelihood of a crisis, thereby evaluating the effectiveness of these policies on the stock market.

Keywords

• stock market
• policy implications
• international stock market
• Vietnam