STOCK MARKET VOLATILITY AND EXCHANGE MARKET PRESSURE IN VIETNAM: EVIDENCE OF ASYMMETRIC TRANSMISSION

Abstract

This paper analyzes the relationship between stock market volatility and exchange market pressure (EMP) in Vietnam over the period from August 2000 to March 2025, focusing on asymmetric transmission from domestic and international markets, through a GJR-GARCH framework combined with ARDL/NARDL specifications. The empirical findings indicate that domestic stock market volatility exerts a positive and asymmetric effect on EMP in the short run, while international stock market volatility produces a positive and asymmetric impact on EMP over the long run. These effects are predominantly driven by negative shocks, whereas positive shocks are found to be neutral. Vietnam's EMP exhibits rapid self-correction following shocks, reflecting the foreign exchange market's inherent capacity to absorb volatility. The study makes three principal contributions: (i) the adoption of EMP as a more encompassing proxy for exchange market stress in lieu of the nominal exchange rate; (ii) the integration of GJR-GARCH with ARDL/NARDL to identify nonlinear transmission mechanisms; and (iii) the provision of empirical evidence for one-sided asymmetric spillovers running from equity markets to EMP. These findings underscore the informational role of stock market volatility as a leading indicator and highlight the strategic importance of foreign exchange reserves in mitigating the propagation of financial shocks.