THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING BANKING UNIVERSITY OF HO CHI MINH CITY NGUYEN THIEN NHAN EXAMINING HERDING BEHAVIOR IN VIETNAMESE STOCK MARKET GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 52340201 Ho Chi Minh City, April 2022 THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING BANKING UNIVERSITY OF HO CHI MINH CITY NGUYEN THIEN NHAN EXAMINING HERDING BEHAVIOR IN VIETNAMESE STOCK MARKET GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 52340201 ACADEMIC ADVISOR DUONG THI THUY AN, PHD. Ho Chi Minh City, April DECLARATION I honestly declare that this graduation thesis entitled “Examining herding behavior in Vietnamese stock market” is the final result of my original research work under the guidance of PhD. Duong Thi Thuy An, my academic advisor. This thesis has never been submitted for a master's degree at any anywhere else before.
This thesis is the author's own research and the results of the research are trustworthy. The thesis does not consist of any previously published content or content made by others except forcitations which are fully cited in the thesis. Ho Chi Minh City, April 2022 Nguyen Thien Nhan i ACKNOWLEDGEMENT First of all, I would like to express my special thanks to my academic advisor, PhD. Duong Thi Thuy An.
Thank you for always supporting me whenever I need your help and all the knowledge you have taught me during my university journey. Sedconly, I would like to sincerely thank to my parents, who always take care and encourage me during the time doing this thesis. I will never forget the love you gave me! Last but not least, I want to say thanks to my friend, Bao Phuong, who has appeared at the hardest time to help me. ii LIST OF ABBREVIATIONS Abbreviations Definition CCK Chang, Cheng and Khorana Model CH Christie and Huang’s Model CSAD Cross-sectional absolute deviation EMH Efficient Market Hypothesis GDP Gross Domestic Product HNX Ha Noi Stock Exchange HS Hwang and Salmon Model HSX Ho Chi Minh Stock Exchange NS Nofinger and Sias Model OLS Ordinary Least Squared OTC Over-the-Counter market QREG Quantile Regession TIP Trading Imbalance Picture VND Vietnam Dong ii LIST OF TABLES Name of tables Page Table 2.
A summary of relevant empirical research about herding 13 behavior. Summary of data observations used in the study 19 Table 4. Summary statistics of cross-sectional absolute deviation 26 and absolute market return Table 4. T-test result 28 Table 4.
Correlation among variables 29 Table 4. Regression result of herding behavior in Vietnamese stock 29 market Table 4. Regression result of herding in up and down market 30 Table 4. Regression result of herding in high and low trading 31 volume Table 4.
Table summary of regression results 32 Table 4. Summary of regression results 36 i TABLE OF CONTENTS DECLARATION. ii LIST OF ABBREVIATIONS.iii LIST OF TABLES.iv CHAPTER 1: INTRODUCTION. Research scope and methodology.5 CHAPTER 2: LITERATURE REVIEW.
Theoretical literature review. Herding in different conditions. Empirical literature review.19 CHAPTER 3: RESEARCH METHODOLOGY. Data collection and sample description.
Regression model for testing the hypotheses. Regression model for estimation the degree of herd in rising and falling market:. Regression model for estimation the degree of herd in high and low volume trading market:. Research process when using OLS.
Quantile regression analysis.25 CHAPTER 4: EMPIRICAL RESULT. Testing for mean different of CSAD. Correlation analysis among variables. Evidence of herding behavior in Vietnamese stock market.
Herding in up and down market. Herding behavior and trading volume. Quantile regression result.34 CHAPTER 5: CONCLUSION AND IMPLICATIONS. Implication for herding in Vietnamese stock market.
Limitations and further research direction.48 Appendix 1: Correlation between variables.51 Appendix 2: Regression results to test for the presence of herding behavior.51 Appendix 3: Regression results to test for the level of herding behavior in up and down markets.51 v Appendix 4: Regression results to test for the level of herding behavior in high and low market trading volume.52 Appendix 5: Quantile regression analysis to test for the presence of herding behavior. 64 v CHAPTER 1: INTRODUCTION This chapter depicts the introduction of the research. It comprises the research background, research question, research objective, research gap, research methodology, scope, and research structure. Research background The Vietnamese stock market has experienced 21 years from its foundation in 1998, including Ho Chi Minh Stock Exchange (HSX) and Ha Noi Stock Exchange.
With only two listed companies at the early stage in 2000, the Vietnamese stock market has undergone many ups and downs with lots of memorable milestones. On September 30, 2021, the Vietnamese stock market had 2,133 listed stocks. The market value has reached over 8.3 million billion VND, equivalent to 133. In the recent two years, this emerging market has entered a new period of development with many impressive mileposts.
The value of the VN-Index has increased significantly, especially since March 2020; the Vietnamese stock market has broken many records in terms of liquidity as well as the number of new accounts. At the end of 2021, there were 52 listed companies having capitalization reaching more than 1 billion USD, VN-Index increased from about 1120 points to 1498.28 points for gaining 378 points in a year, and the average daily trading volume was more than 26.560 trillion Dong in 2021. The first outbreak of the Covid-19 pandemic occurring in March 2020 has affected the market index adversely. VN-Index dropped from 1000 to 650 in March 2020, equivalent to losing 35% points.
Afterwards, the market has recovered from the bottom and experienced am impressive growth until 2021 at 1498. During the period from March 2020 to December 2021, investors also experienced many strong downward, unpredictable trading sessions and were difficult to explain. Then, at each milestone where the VN-Index was about to break the new record in value, the market experienced strong declines from 100 points to 200 points. So, is the market really efficient and does any mispricing or bubbles exists in our equity market? After a 1 financial crisises or a correction of the market, herding behavior is often considered to be a reason causing mispricing.
First of all, knowing what is an bubble hepls us understand more about the basis of herding phenomena. Hashimoto (2020) defines an asset bubble as a deviation of the asset’s market value from its fundamental value and asset prices often higher than the fundamental value before the financial crisis. However, according to standard finance theory, an efficient market is defined as a market in which all published information about a business reflects accurately and timely on stock prices. This means that investors can base on the price determined in the market as a signal to have a reasonable plan to allocate investment capital (Eugene Fama, 1970).
Besides that, EMH theory also says that people are rational, make decisions reasonably, and have no biases in their future predictions. So, if the market is efficient and people are rational, why do we still face up to many financial crises and asset bubbles in the past? Through those economic depressions in Vietnam or over the world, the efficient market theory has started to be doubted about the precision. Behavioral finance has appeared and been able to interpret those unusual fluctuations. While efficient market theory highly appreciates the rationality of investors, behavioral finance emphasis on the investors' behavior and understanding how their psychological factors influence the stock prices (Statman, 2014).
Behavioral finance is a new branch in finance that combines psychology theories and conventional finance to understand market behavior and investor's decisions; in other words, while the standard finance theory believes that market participants view stock prices rationally based on all current and future intrinsic and external factors, behavioral finance asserts that people are not entirely logical and markets are not fully efficient. Statman (2014) mentiones four main foundation blocks of standard finance and offered four alternative foundation blocks of behavioral finance. Standard finance is based on: 1) People are rational 2) markets are efficient 3) people should design portfolios by the rules of mean-variance portfolio theory 2 and do so, and 4) expected returns of investments are a function of risk. BF offers four alternative blocks: 1) People are normal 2) the market is not efficient 3) people design portfolios by the rules of behavioral portfolio theory, and 4) Expected returns of investments are described by behavioral asset pricing theory.
About the development of behavioral finance, this field was first time mentioned in the 18th century in the imperative works presented by Adam Smith named Theory of Moral Sentiments (1759) and Wealth of Nations (1776). Smith (1759) emphasizes the role of sentiments in decision-making. After that, the 1960s and 1970s were a new period of BF's development. Tversky and Kahneman, who are known as "Father of Behavioral finance," gave their judgments with three heuristics, namely availability, representativeness, anchoring, and adjustment.
Nowadays, behavioral finance has improved our understanding of the financial market, especially to some extent; it can interpret what standard financial theory could not explain. Herding behavior can be interpreted as a situation when traders make decisions by imitating others' behavior (Spyrou, 2013), and a reason that causes herding, according to Bikhchandani et al. (1992), is the non-transparency of the equity market. A lot of research investigate herding in different countries all over the world and some of them find that herding behavior is more pronounced in emerging market, see e.g in Voronkova and Bolh (2015).
Based on those issues mentioned above and the curiosity of the author about this phenomenon in the Vietnamese equity market, the author decided to do a research of "Examining herding behavior in Vietnamese stock market" aiming to help investors have a greater understanding of herding in Vietnamese financial market and supporting for their progress of making investment decisions. Research gap There were numerous studies examining the presence of herding in both developed and emerging countries on over the world. Tan et al. (2008), Chiang et al.
(2010), Fu and Lin (2010) and Ju (2019) employs cross-sectional standard 3 deviation (hereafter CSSD) and cross-sectional absolute deviation (here after CSAD) model to examine herding behavior in Chinese stock markets. Choi & Skiba (2015) employ the model proposed by Sias (2004) and Choi & Sias (2009) for investigating herding in 41 countries; Kumar et al. (2020) applies the cross- sectional absolute deviation model to detecting herding in Japan, Thailand, Taiwan, China, Indonesia, US, UK, India and Malaysia. In Vietnam, Tran and Truong (2011) examine herding by applying the GARCH to confirm the estimated result after using the Odinary least squared method to detect the phenomenon.
Vo and Phan (2017) use CSAD and CSSD model to detect herding in the Vietnamese stock market covering the period from 2005 to 2015. The results indicate that herding does exist in the Vietnamese equity market. This research applies the CSAD model to test herding behavior in the Vietnamese stock market over the period from 2016 to 2021, which is a more updated data set. In some recent years, Vietnamese equity market has experienced an outbreak of liquidity and a mass number of new investors joining the stock market.
The author aims to provide an overview of herding in the stock market by utilizeing the CSAD model proposed by Chang et al. (2000) and employs quantile regression analysis to investigate herding. Research question This thesis is aimed to solve some issues: Does herding behavior exist in the Vietnamese stock market and how it affects the stock market? Observing herding behavior in various market conditions, such as up/down market and high/low trading volume market. Research objectives This main objective is to examine to what extent does the herding behavior exist in the Vietnamese stock market from 2016 to 2021 by studying the relationship between the level of equity return dispersion measured by CSAD and the overall market return.
4 Besides that, this research aims to investigate herding behavior in different conditions market.
