Equity returns volatility in an emerging economy amidst domestic and foreign turmoil spillovers: Do industry and government ownership matter?

Abstract

Turmoil in one economy can readily spread to others with which it is closely integrated. Emerging economies, often marked by structural fragility, are particularly vulnerable to spillovers from advanced economies on which they rely for growth and development. This study examines how economic and political uncertainties from Vietnam and its key trading partners (i.e., the US, South Korea, Japan and China) influence firm-level equity return volatility in the country. The findings suggest that uncertainty within the country exerts a stabilizing effect on equity return volatility, whereas uncertainty stemming from the US, China, and Japan exacerbates volatility in Vietnam’s equity markets. Notably, spillovers from South Korea appear to have a stabilizing influence. Moreover, significant heterogeneity across firms is unveiled. Specifically, firms across industries, as well as state-owned enterprises, exhibit heterogeneous responses to both domestic and external uncertainty shocks. The findings suggest several valuable insights for policymakers, investors and corporate managers.