Volatility forecasting in Vietnam stock market: The role of implied volatility indices from its major trading partners

<p>This thesis studies the volatility predictability in the Vietnam stock market from its major trading partners’ implied volatility indices. In this thesis, the benchmark regression model is to investigate domestic volatility predictability, and it has been expanded internationally by including implied volatility indices of Vietnam’s five trading partners. Moreover, we have assessed the effect of all five foreign indices by applying the principal components analysis approach. To enhance robustness of the models, out-of-sample analysis has been conducted to evaluate out-of-sample forecasting accuracy through defined criteria. Furthermore, to measure economic value of volatility forecasting, performance comparison between a dynamic portfolio involving volatility timing strategies and a pure buy-and-hold portfolio is conducted. Our results show that international volatility indices play an important role in predicting Vietnam stock market’s volatility, and these results have been reinforced by the out-of-sample analysis. Finally, our approach of volatility forecasting has made valuable contributions by significant economic value generated from a volatility timing strategy.</p>