Can Crude Oil Price be a Predictor of Stock Index Return? Evidence from Vietnamese Stock Market
Vu Ngoc Nguyen and
Dat Thanh Nguyen
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Vu Ngoc Nguyen: The University of Danang, Vietnam.
Dat Thanh Nguyen: The University of Danang, University of Economics, Vietnam.
Asian Economic and Financial Review, 2020, vol. 10, issue 1, 13-21
This paper tests the predictive power of crude oil price returns in forecasting Vietnamese stock index returns. We used the VN index and HNX index to calculate stock index returns and WTI and BRENT oil prices. Using a daily sample from 4th January 2006 to 31st December 2017, our analysis focused on both in-sample and out-of-sample predictability by applying the Westerlund and Narayan (2015) feasible generalized least square (FGLS) estimator which corrects persistency heteroskedasticity and endogeneity problems. We showed that the crude oil prices are reliable predictors of Vietnamese stock index returns. In terms of in-sample predictability, thirteen out of sixteen predictive regression were significant. We found that the BRENT crude oil index is slightly more powerful than the WTI crude oil price in predicting Vietnam stock index returns with seven out of eight regressions being significant compared to six out of eight from that of the WTI oil price. In terms of out-of-sample predictability, our results were also complemented by a robustness test, i.e. competing with a constant return model which used the historical average as the predictive value.
Keywords: Stock returns; Predictability; Oil price; Out-of-sample; Heteroskedasticity; Endogeneity. (search for similar items in EconPapers)
JEL-codes: C49 G17 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:asi:aeafrj:2020:p:13-21
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