Connectedness of Vietnamese bank stock returns under the impact of the COVID-19 pandemic

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The COVID-19 pandemic highlighted the sensitivity of connectedness among bank stock returns in Vietnam. The aim of this study is to examine the strength of this connectedness along with the effect of government lockdown policy and COVID-19 cases on the total connectedness index (TCI) of 16 listed banks on Vietnamese stock exchanges. They are assessed using the database of FiinPro on the banking sector between January 2020 and July 2022, Vietnam Center for Disease Control and Prevention (CDC), and The World Health Organization (WHO) on the COVID-19 pandemic, employing a time-varying-parameter vector autoregressive (TVP-VAR) connectedness framework and the conditional quantile regression model.
The results show that at the firm level, there is strong interdependence among bank stock returns with the average TCI being as high as 90.66%. It is also revealed that medium and large-sized banks are receivers of shock, while smaller banks are transmitters. As far as the impact on TCI is concerned, the widespread of the pandemic with the increasing number of COVID-19 cases is significantly negative, whereas the tightening of lockdown is significantly positive. Besides, the degree of the impact varies according to the 95th, 75th, 50th and 25th levels of conditional quantile regression. Based on the study’s findings, individual investors are recommended to thoroughly analyze the connectedness of banks before making investment decisions, while bank regulators should strengthen controls on credit relationships with small banks. Regarding policy makers, it is proposed to apply flexible restrictions and short-term lockdown depending on the actual outbreak of the pandemic.

Acknowledgment
The paper was conducted within the scope of Project QG21.48 of Vietnam National University.

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    • Figure 1. Connectedness network of stock returns of 16 Vietnamese banks
    • Figure 2. Total dynamic connectedness of 16 bank stock returns
    • Figure 3. Change of net directional connectedness of individual bank stock returns in the study period
    • Table 1. Variables used in regression models
    • Table 2. Summary statistics of bank stock returns and COVID-19 cases
    • Table 3. The average connectedness measures of individual bank stock returns for the study period
    • Table 4. Impact of the number of COVID-19 cases on TCI-linear regression and quantile regression
    • Table A1. Pairwise correlation among bank stock returns
    • Table B1. Movements of bank stock returns and the COVID-19 cases
    • Table C1. Linear regression (LR) – impact of the pandemic on the NET connectedness values of listed banks (xth quantile of the NET)
    • Conceptualization
      Nguyen Phu Ha, Luong Tram Anh, Le Hong Thai
    • Data curation
      Nguyen Phu Ha, Luong Tram Anh, Le Hong Thai
    • Formal Analysis
      Nguyen Phu Ha, Luong Tram Anh, Le Hong Thai
    • Funding acquisition
      Nguyen Phu Ha
    • Methodology
      Nguyen Phu Ha, Luong Tram Anh, Le Hong Thai
    • Project administration
      Nguyen Phu Ha
    • Supervision
      Nguyen Phu Ha, Le Hong Thai
    • Writing – original draft
      Nguyen Phu Ha, Luong Tram Anh, Le Hong Thai
    • Writing – review & editing
      Nguyen Phu Ha
    • Investigation
      Luong Tram Anh, Le Hong Thai
    • Resources
      Luong Tram Anh, Le Hong Thai
    • Software
      Luong Tram Anh, Le Hong Thai
    • Validation
      Luong Tram Anh, Le Hong Thai
    • Visualization
      Luong Tram Anh, Le Hong Thai