The impact of geopolitical risk on the stock market and stock bubbles in Vietnam: A mediation model

This paper aims to examine the indirect impact of geopolitical risk on the Vietnamese stock market and stock bubbles (VSB) through its impact on macro factors and commodity prices. Firstly, before testing the influence of geopolitical risk on stock bubbles, a stock bubble existence test using SADF (sup augmented Dickey Fuller test) and GSADF (generalized sup Augmented Dickey Fuller) is done. The tests show that stock bubbles appeared on the Vietnamese stock market in 3 periods: September 2014 to November 2014, June 2017 to May 2018 and March 2021 to March 2022. Secondly, the test on indirect relationship between geopolitical risk and Vietnam's stock market and stock bubbles reveals that geopolitical risk has a significant indirect relationship with the stock market through intermediary factors including macroeconomic factors and natural gas prices, while it has a significant indirect relationship with stock bubbles through the mediation role of oil prices and natural gas prices. More specifically, the indirect relationships are weak but positive, which means that increasing geopolitical tension may cause the VNIndex (representing Vietnam's stock market) to increase and may further exacerbate stock bubbles on the market. Finally, the indirect correlation between geopolitical risk and Vietnam's stock bubble is discussed and a crucial finding is concluded that major geopolitical events often occurred just before and during the stock bubble formation.