Bank Equity as a Predictor of Economic Growth: Evidence from Vietnam

The equity market is often regarded as a thermometer of the economy thanks to its unique ability to not only accurately reflect current conditions, but also provide predictions of future trends. Specifically, this predictive power stems from the foundation that the equity market is significantly influenced by a wide range of macroeconomic variables. This paper aims to inspect such predictability by examining the correlation between the economic crisis and the underperformance of banking equity. This research is conducted as a replication of “Banking crises without panic” (Baron et al. in Q J Econ 136:51–113, 2021) but focuses mainly on the context of Vietnam. The research methodology used in this study is based on the local projection specification, with some adjustments for the specific context. Vietnam’s financial market has grown rapidly around three key pillars: bank credit, equity, and bond markets. Although the analysis did not yield statistically significant results, several important conclusions can still be drawn. These findings are expected to be valuable for policymakers, financial investors, and other stakeholders aiming to understand and predict economic development. The government should particularly focus on developing the equity market, as it can serve as both an additional funding source and a platform that reflects market expectations.