Economic Policy Uncertainty and Stock Market Volatility Under The COVID-19 Pandemic: Evidence from Vietnam
Downloads
This study investigates how economic policy uncertainty affects stock market volatility in developing countries. Using monthly data on the Vietnamese stock market from March 2011 to December 2024 and employing the Vector Autoregression (VAR) model, the author identified significant connections between economic policy uncertainty and other macroeconomic factors and stock market fluctuations. The findings indicate that economic policy uncertainty in Vietnam significantly and positively influences market volatility, implying that a higher level of policy uncertainty leads to higher market fluctuations. Moreover, past market changes, inflation, and the COVID-19 pandemic have also played significant roles in affecting stock market changes in Vietnam. The results underscore the importance of eocnomic policy uncertainty in shaping the dynamics of the Vietnamese stock market, and stress the necessity for transparent and stable policy frameworks to ensure stable market operations. Based on these results, the authors suggest relevant recommendations for policymakers and investors to reduce the unfavorable impact of policy uncertainty on stock market operations and portfolio investments.
Abbas, G., Wang, S., & Mcmillan, D. G. (2018). Conditional volatility nexus between stock markets and macroeconomic variables. Journal of Economic Studies, 45(1), 77–99. https://doi.org/10.1108/jes-03-2017-0062
Akerlof, G. A. (1970). The market for "lemons": Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84(3), 488–500. https://doi.org/10.2307/1879431
Ahir, H., Bloom, N., & Furceri, D. (2022). The World Uncertainty Index. NBER Working Paper No. 29763. https://doi.org/10.3386/w29763
Ali, R., Mangla, I. U., Rehman, R. U., Xue, W., Naseem, M. A., & Ahmad, M. I. (2020). Exchange rate, gold price, and stock market nexus: A quantile regression approach. Risks, 8(3), 86. https://doi.org/10.3390/risks8030086
Arthur, W. B. (2018). Asset Pricing Under Endogenous Expectations in an Artificial Stock Market (pp. 15–44). crc.
https://doi.org/10.1201/9780429496639-2
Auboin, M., & Ruta, M. (2013). The relationship between exchange rates and international trade: a literature review. World Trade Review, 12(3), 577–605. https://doi.org/10.1017/s1474745613000025
Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024
Batten, J. A., Mo, D., & Pourkhanali, A. (2023). Can inflation predict energy price volatility? Energy Economics, 129, 107158.
https://doi.org/10.1016/j.eneco.2023.107158
Chiang, T. (2020). Economic policy uncertainty and stock returns—evidence from the Japanese market. Quantitative Finance and Economics, 4(3), 430–458. https://doi.org/10.3934/qfe.2020020
Choi, S., & Shim, M. (2018). Financial vs. Policy Uncertainty in Emerging Market Economies. Open Economies Review, 30(2), 297–318.
https://doi.org/10.1007/s11079-018-9509-9
Chowdhury, E. K., Dhar, B. K., & Stasi, A. (2022). Volatility of the US stock market and business strategy during COVID‐19. Business Strategy & Development, 5(4), 350–360.
https://doi.org/10.1002/bsd2.203
Dash, S. R., Debata, B., Mahakud, J., & Maitra, D. (2019). Economic policy uncertainty and stock market liquidity: Evidence from G7 countries. International Review of Finance, 21(2), 611–626. https://doi.org/10.1111/irfi.12277
Engle, R. F., Ghysels, E., & Sohn, B. (2013). Stock Market Volatility and Macroeconomic Fundamentals. Review of Economics and Statistics, 95(3), 776–797.
https://doi.org/10.1162/rest_a_00300
Fakunmoju, S. K. (2024). Economic policy uncertainty and stock market development in Nigeria. Modern Management Review, 29(4), 29–42. https://doi.org/10.7862/rz.2024.mmr.18
Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383–417.
https://doi.org/10.2307/2325486
Ghani, M., & Ghani, U. (2023). Economic Policy Uncertainty and Emerging Stock Market Volatility. Asia-Pacific Financial Markets, 31(1), 165–181. https://doi.org/10.1007/s10690-023-09410-1
Glasserman, P., & Mamaysky, H. (2019). Does Unusual News Forecast Market Stress? Journal of Financial and Quantitative Analysis, 54(5), 1937–1974. https://doi.org/10.1017/s0022109019000127
Hamilton, J. D., & Lin, G. (1996). Stock market volatility and the business cycle. Journal of Applied Econometrics, 11(5), 573–593.
https://doi.org/10.1002/(sici)1099-1255(199609)11:5<573::aid-jae413>3.0.co;2-t
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–291.
https://doi.org/10.2307/1914185
Kim, J., Park, D., Mallick, S., & Kumar, A. (2021). Financial uncertainty and interest rate movements: is Asian bond market volatility different? Annals of Operations Research, 133(5), 731–759. https://doi.org/10.1007/s10479-021-04314-7
Kundu, S., & Paul, A. (2022). Effect of economic policy uncertainty on stock market return and volatility under heterogeneous market characteristics. International Review of Economics & Finance, 80, 597–612.
https://doi.org/10.1016/j.iref.2022.02.047
Liu, H., Song, H., Yang, P., & Wu, D. C. (2023). Global and domestic economic policy uncertainties and tourism stock market: Evidence from China. Tourism Economics, 30(3), 567–591. https://doi.org/10.1177/13548166231173171
Muth, J. F. (1961). Rational expectations and the theory of price movements. Econometrica, 29(3), 315–335. https://doi.org/10.2307/1909635
Salisu, A. A., Gupta, R., & Demirer, R. (2023). Policy uncertainty and stock market volatility revisited: The predictive role of signal quality. Journal of Forecasting, 42(8), 2307–2321. https://doi.org/10.1002/for.3016
Schaling, E., & Nolan, C. (1998). Monetary policy uncertainty and inflation: the role of central bank accountability. Economist, De, 146(4), 585–602. https://doi.org/10.1023/a:1003494413926
Schwert, G. W. (2011). Stock Volatility during the Recent Financial Crisis. European Financial Management, 17(5), 789–805.
https://doi.org/10.1111/j.1468-036x.2011.00620.x
Simran, & Sharma, A. K. (2024). Asymmetric nexus between economic policy uncertainty and the Indian stock market: Evidence using NARDL approach. The Quarterly Review of Economics and Finance, 93, 91–101.
https://doi.org/10.1016/j.qref.2023.11.006
Sreenu, N. (2023). Effect of Exchange Rate volatility and inflation on stock market returns Dynamics - evidence from India. International Journal of System Assurance Engineering and Management, 14(3), 836–843.
https://doi.org/10.1007/s13198-023-01914-3
Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American Economic Review, 71(3), 393–410. https://www.jstor.org/stable/1802789
Syed, Q. R., & Bouri, E. (2021). Spillovers from global economic policy uncertainty and oil price volatility to the volatility of stock markets of oil importers and exporters. Environmental Science and Pollution Research International, 29(11), 15603–15613. https://doi.org/10.1007/s11356-021-16722-0
Turner, A. L., & Weigel, E. J. (1992). Daily Stock Market Volatility: 1928–1989. Management Science, 38(11), 1586–1609.
https://doi.org/10.1287/mnsc.38.11.1586
Wei, Y., Bai, L., Wei, G., & Yang, K. (2020). Are industry‐level indicators more helpful to forecast industrial stock volatility? Evidence from Chinese manufacturing purchasing managers index. Journal of Forecasting, 40(1), 17–39.
https://doi.org/10.1002/for.2696
WiData. (2025). WiData – Financial & economic database. Retrieved May 4, 2025, from https://www.wigroup.vn/en/product/widata
Wooldridge, J. M. (2013). Introductory econometrics: A modern approach (5th ed.). South-Western Cengage Learning.
Yuan, D., Li, S., Li, R., & Zhang, F. (2022). Economic policy uncertainty, oil and stock markets in BRIC: Evidence from quantiles analysis. Energy Economics, 110, Article 105972.
