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Dissertation

Investor behaviour in Vietnam stock market

Table of Content
List of tables 3
List of figures 4
Chapter 1.

Introduction .................................................................................................................. 5

1.1

Rationales for chosen topic .......................................................................................... 5

1.2

Research aim and objectives ........................................................................................ 6

1.3

Research questions ....................................................................................................... 6

1.4

Research significance................................................................................................... 7

1.5

Research structure ........................................................................................................ 7

Chapter 2.

Literature Review......................................................................................................... 8

2.1

Market efficiency ......................................................................................................... 8

2.1.1

Concept of market efficiency ......................................................................................... 8

2.1.2

Assumptions of efficient market theory......................................................................... 9

2.1.3

Characteristics of efficient market ............................................................................... 10

2.1.4

Three forms of market efficiency ................................................................................ 11

2.1.5

Limitations of efficient market .................................................................................... 12

2.2

Behavioral finance ..................................................................................................... 14

2.2.1

Concept of behavioral finance ..................................................................................... 14

2.2.2

Foundations of behavioral finance ............................................................................... 15

2.2.3

Herd behavior............................................................................................................... 28
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2.3
Chapter 3.

Hypothesis development ............................................................................................ 31


Research Methodology .............................................................................................. 32

3.1

Research Approach .................................................................................................... 32

3.2

Research Model ......................................................................................................... 32

3.2.1

Efficient market testing ................................................................................................ 32

3.2.2

Behavioral finance testing............................................................................................ 34

3.3

Questionnaire design .................................................................................................. 36

Chapter 4.

Results and Discussion .............................................................................................. 39

4.1

Market overview ........................................................................................................ 39

4.2

Efficient market testing .............................................................................................. 40

4.3

Vietnamese market: behavioral finance perspective.................................................. 42

4.3.1

Difference in confidence of investors .......................................................................... 42

4.3.2

Inspection of herd behavior ......................................................................................... 47

4.4

Survey results ............................................................................................................. 49

4.4.1

Data description ........................................................................................................... 49

4.4.2

Results summary .......................................................................................................... 49

4.4.3

Notes to outlook ........................................................................................................... 54

4.4.4

Statistical comparison .................................................................................................. 59

4.5

Summary .................................................................................................................... 60

4.6

Recommendation ....................................................................................................... 61

4.6.1

Personal Investor .......................................................................................................... 61

4.6.2

Listed enterprise ........................................................................................................... 62

4.6.3

Market management..................................................................................................... 64

Chapter 5.

Conclusions ................................................................................................................ 67

Reference

68

List of tables
Table 4-1 Basic information about the market .................................................................... 37
Table 4-2 Results of testing market efficiency ................................................................... 38
Table 4-3 Overview Statistics ............................................................................................. 45
Table 4-4 Statistic coefficients of dispersion by date ......................................................... 46
Table 4-5 Comparison between question 6 and 10 ............................................................. 57
Table 4-6 Comparison between question 6 and 14 ............................................................. 58

List of figures
Figure 2-1 Utility function .................................................................................................. 27
Figure 4-1 Stock price chart/ HOSE chart .......................................................................... 41
Figure 4-2 Most important factor in making investment decisions .................................... 49
Figure 4-3 Most important factor when making investment decisions ............................... 50
Figure 4-4 Most important factor for high market valuations............................................. 51
Figure 4-5 Most important factor for market decline.......................................................... 52
Figure 4-6 Estimated value of current market .................................................................... 53
Figure 4-7 Reasons for less successful investment ............................................................. 54
Figure 4-8 Ability to predict market development .............................................................. 55
Figure 4-9 Response to company information .................................................................... 56
Figure 4-10 Confidence level in market recovery............................................................... 56

Chapter 1.

Introduction

1.1 Rationales for chosen topic


The conventional financial theories with the two main platforms of the market efficiency
and arbitrage (price difference) business assumes that most people act rationally, which
means that they are always looking for ways to maximize the value of their assets, among
others (Beaver, 1981; Fama, 1998; Dimson and Mussavian, 2000; Malkiel et al., 2005).
However, the actual statistics show that this market theory is not always right, in literature
(Rosenberg et al., 1998; Shleifer, 2000; Stout, 2002; Malkiel, 2003; Ito and Sugiyama, 2009).
When an investor gets involved in the stock market, popular techniques such as fundamental
analysis and technical analysis will be used to support its decision - making process. With
this method it is assumed that the other investors have the same reasoning. However, after a
period of making attempts, it is suddenly realized that the model that he has been built does
not yield the expected rate of return. And it even cannot be fully explained the data collected.
The stock market is considered to be a barometer of the economy; however, it seems not
right in Vietnamese stock market. There were times when the VN - Index increased
dramatically and dropped significantly despite the economy. In Vietnamese stock market,
since the late 2006, investors have seen many excessively tremendous shocks and drops
(Khuc, 2008; Matters, 2008; Vuong and Vuong, 2011; Le and Doan, 2011; Lee and Khoa,
2012). Thus, the financial behavior was born as an additional method to explain the
phenomenon that the conventional financial market has faced. However, in Vietnam,
behavioral finance is a new theory, which have not been focused and exploited. There are
also very few researches and articles about it (Lee and Khoa, 2012). Thus the project
"Influences of investor behaviour on Vietnamese stock market" based on the theoretical
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foundation which has been studied and by scholars in the world, is carried on with the
purpose to apply the theory of behavioral finance in Vietnamese market to explain the recent
unusual incidents by facts and figures, thereby give investors a new perspective on the
market.

1.2 Research aim and objectives


The aim of this study is to investigate the relationship between investors behaviour and its
impact on their investment choices generally in Vietnam specifically. Therefore, in this study
the effect of investor sentiment on the phenomenon of financial bubble in Vietnamese stock
market in the period from 2006 to late 2011 has been investigated.
Objectives:

To review the literature related to behavioral finance, theories related to efficient


market

To examine the effect of the behavior of investors on their investment choices,

To determine whether Vietnamese stock market is effective or not by analyzing


data from 2006 to 2012.

1.3 Research questions


The approach of this project is based on the theoretical foundation which has been studied
by researchers and scholars in the world to explain unusual incidents in the stock market of
Vietnam. The research tries to answer the following questions:

Is Vietnamese stock market an efficient market in terms of information?

What factors affect the investment decisions of investors since 2008 to early 2012?

What are the solutions to help a market become efficient?

1.4 Research significance


With this content of research, it provides frameworks in theory in terms of behavioral
finance that is considered as newly approach to Vietnamese investor with empirical data to
validate. From which, the research would make recommendation for investor, business and
policy maker in purpose of enhancing the market efficiency.

1.5 Research structure


In order to achieve the study purpose, the dissertation is structured as following:

Chapter I: General introduction about the dissertation including research topic,


objectives and scope.

Chapter II: Literature review on market efficiency theory and behavioral finance

Chapter III: Presentation of research method used in order to achieve the study
purposes.

Chapter IV: Empirical results for Influences of investor behaviour on Vietnamese


stock market

Chapter V: Conclusion and recommendation

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