The impacts of covid-19 pandemic, policy responses and macroeconomic fundamentals on market risks across sectors in Vietnam

Abstract

Vietnam has undergone four waves of the Covid-19 pandemic in 2020 and 2021, which has posed significant market risks to sectors in Vietnam. This study measures the sectoral market risks and examines the effects of the current Covid-19 pandemic, policy responses, and macroeconomic fundamentals on the market risks across sectors in Vietnam. We employ the Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR) techniques to measure the market risks for 24 sectors from 2012 to 2021. Key findings from this study are as follows. First, the market risk levels across Vietnamese sectors have changed significantly in response to the Covid-19 pandemic. Oil and Gas and Service exhibited the most significant potential loss during the former two Covid-19 waves in 2022. The Securities sector appears to be the riskiest sector during the last two Covid-19 waves in 2021. Second, the new Covid-19 cases increase the market risk levels across sectors. Third, our empirical results also indicate that enhancing containment and health policy mitigates the market risk, whereas reducing economic policy uncertainty results in lower market risk. Fourth, critical macroeconomic fundamentals such as the exchange rate and interest rates play an important role in the market risks across sectors.