39 DYNAMIC LINKAGES FOR THE ECONOMY OF VIETNAM Matiur Rahman, McNeese State University Mitchell Adrian, McNeese State University Muhammad Mustafa, South Carolina State University ABSTRACT The time series data on stock market return, exchange rate and current account balance for Vietnam are found stationary. As a result, VAR models in irst- difference are estimated. Monthly data from January, 2001 through December, 2012 are employed. The estimates of two VAR models show that lagged changes in exchange rate and current account balance have no signiicant inluences on the current change in stock market returns. On the other hand, lagged changes in stock market returns seem to unleash greater inluences on the current change in exchange rate. JEL Classiications: F31, G01, G12 INTRODUCTION In brief, stock market development in the uniied Vietnam after a prolonged war is a relatively new phenomenon that helps spur economic growth through the inancing of industrial output. The Ho Chi Minh City Securities Trading Center (HoSTC) was inaugurated on July 20, 2000 and trading commenced on July 28, 2000. The HoSTC was renamed and upgraded to Ho Chi Minh Stock Exchange (HOSE) on August 8, 2007 and is the largest stock exchange in Vietnam. 308 companies are listed on the HOSE as of January, 2013. Foreign ownership in listed companies is controlled, but limits have been relaxed to allow up to 49% of investments. There are no price restrictions for newly listed securities and Vietnam has continued progress in an “outward-orientation” by gradually allowing market forces to determine stock prices and exchange rates. A number of hypotheses support the existence of a causal relation between stock prices and exchange rates. ‘Goods market approaches’ by (Dornbusch and Fischer, 1980) suggest that changes in exchange rates affect the competitiveness of a irm. This contends that luctuations in exchange rates affect the value of earnings and cost of capital as companies borrow in foreign currencies to fund their operations; relecting in the perceived value of stocks. For instance, a depreciation of the local currency makes exporting goods attractive and leads to an increase in foreign demand and hence revenue for the irm. The irm’s value would appreciate and thus raise stock prices. In contrast, an appreciation of the local currency decreases proits for an exporting irm as there is