Market volatility spillovers in 24 Vietnamese sectors: The winners, the losers, and the game changers

Abstract

Market volatility spillovers in 24 Vietnamese sectors: The winners, the losers, and the game changers While market volatility and volatility connectedness across different financial markets have been extensively examined, the spillover effects across sectors in an economy have been under-examined in the existing literature. This paper analyzes 24 Vietnamese sectors’ market volatility and the volatility patterns using the ARMA-GARCH estimation over the 2012-2021 period. The spillover effects between all 24 Vietnamese sectors are then investigated using the vector autoregression (VAR) model. We also identify significant breakpoints and compare the changes in market volatility between the pre-and post-breakpoints during the Covid-19 pandemic of 2020-2021 in Vietnam using the wavelet technique. Three key findings are as follows. First, the market volatility of Development Investment, Education, and Securities are most affected by the market volatility from the previous periods, whereas Construction is least affected. Second, the Vietnamese stock market exhibits a substantial inter-sector connectedness at above 60 per cent over the entire period of 2012-2021. However, the sectoral spillover effects increase to around 90 per cent with the emergence of the Covid-19 pandemic in 2020. At the sectoral level, we found that Aquaculture, Building Materials, Food, and Plastic are the four primary risk transmitters that continuously transmit the market volatility to the remaining 20 sectors. The spillover effects are amplified during the pandemic period. Third, our results indicate that market volatility for Energy, Plastic, and Steel are found to be unaffected by the Covid-19 pandemic. Meanwhile, Securities, Fertilizer, and Transportation exhibited the most significant increase in market volatility during the Covid-19. These sectors experience more than 100 per cent volatility increase during the second wave of the Covid-19 pandemic in Vietnam. In contrast, the pandemic supports performance for Aviation, Construction, Development Investment, and Education sectors which experienced volatility reduction during the Covid-19 period.