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Measuring the contemporal and lead connectedness level between investor sentiment and exchange rate dynamics in Vietnam: Novel findings from TVP-VAR-SV technique

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  • Ha, Le Thanh

Abstract

The literature has underscored the significance of investor sentiment in understanding excess stock returns and volatility. However, scholars have paid less attention to measuring investor sentiment related to stock markets and analyzing its impacts on the macroeconomy in Vietnam. Our article employs a time-varying parameter structural vector autoregression (TVP-VAR) with stochastic volatility (TVP-VAR-SV) to examine the connectedness of three key variables from January 1, 2017, to November 25, 2023, and to analyze the relationship between investor sentiment and the exchange rate. Following a positive shock in investment sentiment, the exchange rates of USD/VND and GBP/VND exhibited similar responses, showing a negative movement in the 1-period ahead before turning positive in the 3-period ahead. Conversely, EUR/VND and JPY/VND displayed positive movements both in the 1-period and 3-period ahead in response to the shock. Meanwhile, CNY/VND, reacted negatively overall to a positive shock in investment sentiment was negative. Our results have important policy implications for both investors and policymakers. The study also highlights how spillover effects among various indicators and their interconnections can be leveraged to stabilize financial and macroeconomic markets.

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  • Ha, Le Thanh, 2025. "Measuring the contemporal and lead connectedness level between investor sentiment and exchange rate dynamics in Vietnam: Novel findings from TVP-VAR-SV technique," International Economics, Elsevier, vol. 181(C).
    • Handle: RePEc:eee:inteco:v:181:y:2025:i:c:s2110701725000010
    DOI: 10.1016/j.inteco.2025.100578
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    More about this item

    Keywords

    Investor sentiment; Exchange rate volatility; Vietnam; Uncertain times; R2 decomposed linkage method;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • H1 - Public Economics - - Structure and Scope of Government

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