FLIGHT-TO-QUALITY OR CONTAGION DURING U.S. SUBPRIME CRISIS: EVIDENCE FROM VIETNAM’S FINANCIAL MARKETS
Vol. 128 No. 5B (2019), Original Article
Vol. 128 No. 5B (2019)

FLIGHT-TO-QUALITY OR CONTAGION DURING U.S. SUBPRIME CRISIS: EVIDENCE FROM VIETNAM’S FINANCIAL MARKETS

Original Article
https://doi.org/10.26459/hueuni-jed.v128i5B.5337
Published 2020-03-02
Bui Thanh Cong
Hue College of Economics
Phan Khoa Cuong
Trường Đại học Kinh tế
Tran Thi Bich Ngoc
Hue College of Economics
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Keywords

Financial Contagion
Flight to quality
Vietnam financial markets
US subprime crisis
ADCC-GARCH model

Abstract

Abstract: This study investigates whether contagion or flight-to-quality occurred in Vietnam’s financial markets during the US subprime crisis in 2007. We apply the asymmetric dynamic conditional correlation model (ADCC-GARCH (1,1)) to daily stock-index and bond index returns of Vietnam’s and US stock markets. We test for contagion or flight-to-quality by using a test for difference in dynamic conditional correlation means. The results show a contagion between the US and Vietnam’s stock markets, confirming the widespread influence of the US stock market on a young market like Vietnam. This result suggests a low benefit from diversification for investors holding portfolios containing assets in Vietnam’s stock market and US stock market during the crisis. Moreover, the relationship between Vietnam’s stock and bond markets represents a flight-to-quality during the US subprime crisis. This finding shows that the investors tend to hold less risky assets, i.e., bonds, instead of stocks during this turbulent period in Vietnam.

Keywords: international financial contagion, flight-to-quality, Vietnam, US subprime crisis, ADCC-GARCH

https://doi.org/10.26459/hueuni-jed.v128i5B.5337
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