The paper examines the association between financial market volatility and actual economic incidents. We specifically analyze the statistical characteristics of the stock price series and its association with the financial cycle. Using 20 years of Vietnamese main stock VNIndex daily data from 2 August 2000 to 31 December 2020, we select the most adequate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) family models and corresponding distribution rules. The paper initially assesses several types of GARCH models’ criteria, namely the log-likelihood, AIC and BIC, in choosing the best model to illustrate the financial cycle. We further use three different distribution rules, namely the normal distribution rule, the Student-t statistic distribution, and the Generalized Error Distribution (GED), in selecting the best GARCH model. The results show that Exponential Generalized Autoregressive Conditional Heteroscedastic (EGARCH) with student-t statistic distribution seems the best suited to demonstrate the stock price and its return volatility. It also suits the marginal distribution of the financial cycle. Our study further validates the lead time and volatility between the selected model results and the significant financial events using the turning point and Bull-Bear application (Lunde and Timmermann, 2004). Although the recommended model has shown no evidence as an effective forecast tool for the financial cycle in long run, this study paves the way for extensive research in the future.

The Volatility of the Stock Market and Financial Cycle: GARCH Family Models

The article is focused on examining the existence of the day-of-the-week (DOW) effect on the Vietnamese stock market. This study uses the daily series of closed market indexes data from 2014 to 2021 and extends to a deep-dive review of the outbreak period of the COVID-19 pandemic. Furthermore, the regression model with dummy variables and parametric and non-parametric methods are employed to identify the existence of the DOW effect on stock market returns and volatility. The empirical results obtained from the above models have demonstrated that the day-of-the-week effect impacts stock returns shown in three out of four indices, especially on Mondays and Fridays. At the same time, no statistical evidence supports the presence of any significant daily patterns for either the COVID-19 outbreak phase or in the HNX30. Particularly, the highest return occurs on Monday, and the lowest volatility usually appears on Friday in all three HOSE Indexes. This study contributed further evidence for not only the presence of the day-of-the-effect patterns on the Vietnamese stock market but also path the ways to analyze the stock returns and variance of financial assets during the COVID-19 epidemic.

Thuy N. Tran

Papers

The Volatility of the Stock Market and Financial Cycle: GARCH Family Models

Day of Week Effect on Financial Market: Evidence in Vietnam during Normal Period and COVID-19 Pandemic