This study analyzes volatilities in the relations between stock market, bond market, and foreign exchange market in Vietnam from April 2014 through December 2015. Particularly, we address the questions of whether there exist sudden changes in correlations between the markets to respond to volatility shocks and whether these changes are temporary or extended. | Nguyen Khac Quoc Bao & Bui Van Hoang / Journal of Economic Development 24(2) 51-73 51 Volatilities in the interdependence between stock market, bond market, and foreign exchange market in Vietnam: An empirical investigation NGUYEN KHAC QUOC BAO University of Economics HCMC – nguyenbao@ BUI VAN HOANG hvbuikt@ ARTICLE INFO ABSTRACT Article history: This study analyzes volatilities in the relations between stock market, bond market, and foreign exchange market in Vietnam from April 2014 through December 2015. Particularly, we address the questions of whether there exist sudden changes in correlations between the markets to respond to volatility shocks and whether these changes are temporary or extended. By using VAR(p) – FIEGARCH(1,d,1) – cDCC and PELT approaches in combination with a regression estimation with dummy variables, our empirical results validate the interdependence between the markets, which is found to vary over time. More importantly, volatility shocks give rise to sudden changes in their correlations, and at certain times these are long-lasting. Investors and policy makers in Vietnam should accordingly have due consideration of long-term spillovers. Received: Apr. 8, 2016 Received in revised form: Jul. 8, 2016 Accepted: Mar. 31, 2017 Keywords: Exchange rate Stock market Volatility shifts Spillover effects 52 Nguyen Khac Quoc Bao & Bui Van Hoang / Journal of Economic Development 24(2) 51-73 1. Introduction For most investors and policy makers, perceiving the interdependence between markets is of crucial importance. Correlation structures of these markets act as a basis for formulating strategic policies and allocating investment portfolios. Economic analysts and fund management keep track of the fluctuations in correlations between assets to put forward investment guidelines in order to obtain excess profits. Given macroeconomic policy makers, analyses of the transmission channels between these markets play
