Absorption rate as a system risk measurement tool: evidence from the Viet Nam stock market

Abstract

System risk is one of the problems concerned by many stock market researchers. Many different indicators have been used: the average price index Passcher, Laspeyres or Fisher. These indicators reflect the average price of stocks or a basket of representative stocks in the m arket. The models predicting the prices of these indexes are the measure of market risk. Recently, especially after the major financial crises, the plunge of the stock market indexes has been s een. There are two issues here: Firstly, whether a market index fully reflects systemic r isk. Secondly, any state of market risk implicit breakdowns. Mark Kritzman et al., 2010 proposed index of Absorption Rate as a system risk measurement tool. Research results of the authors and some other studies show that: 1. The sharp decline of the US stock market against the soaring rate of absorption; 2. Stocks devalued significantly after the rate of absorption increased and then p lummeted; 3 . Absorption rate is a leading indicator of the US housing market bubble; 4. Increased absorption rate has a system of market turmoil; 5. The time of major financial crisis coincided with a large change of this rate; 6. Absorption rate contains a large proportion of information about structural models and complex calculations of financial s pread. This article introduces and tests the use of absorption rate to analyze the volatility of the Vietnam stock market. The analysis will focus on a number of periods with different market fluctuations. Experiment uses absorption rate index for a pricing model.