Procedia Economics and Finance 2 ( 2012 ) 179 190

2212-5671 2012 The Authors. Published by Elsevier Ltd. Selection and/or peer-review under responsibility of Global Science and Technology Forum
doi: 10.1016/S2212-5671(12)00078-0

2nd Annual International Conference on Accounting and Finance (AF 2012)
Momentum effect in the Vietnamese stock market
Thu Hang Nguyen
a,b,
*
a
Foreign Trade University, HCMC Campus, 15-D5, W.25, Binh Thanh, HCMC, Vietnam
b
PhD Candidate, Lille 2 University of Law and Health, 42, Paul Duez,59000, Lille, France
Abstract
Examining the profits on the momentum portfolios, the study discovers the short-term momentum effect in the
Vietnamese stock market. However, further tests by specific periods, by sizes show the poor performance of the
momentum profit after controlling for risks. The study also explains the poor performance by arguing some sources of the
momentum profits such as market states and investors behavior.

2012 The Authors. Published by Elsevier Ltd.
Selection and/or peer-review under responsibility of Global Science and Technology Forum Pte Ltd
Keywords: Momentum effect; market state; investors behavior.
1. Introduction
Two diametrically opposed phenomena often discovered from prior empirical studies on the weak form
test of the market efficient market hypothesis are reversal and momentum. The sooner stating that stocks
which have outperformed (or underperformed) the market over a period of time will underperform (or
outperform) the market over the subsequent and similar period is normally observed for long term periods of
one to five years (DeBondt and Thaler,1985), whereas, the later saying that past winners continue to be
winners and past losers continue to be losers is detected in the short-run (three months to one year) (Jegadeesh
and Titman, 1993).
Furthermore, observations on the Vietnamese stock market have shown that many investors base their
decision on stock price forecast drawn from historical price data analysis. This phenomenon provides a hint to
test the reversal or momentum effect of the market. However, since Vietnamese stock market is newly
established, to have sufficient data, a sample of weekly return data of stocks listed on the Hochiminh Stock


* Corresponding author. Tel.:+84-958817953.
E-mail address:nthuhang@hotmail.com.
Available online at www.sciencedirect.com
2012 The Authors. Published by Elsevier Ltd. Selection and/or peer-review under responsibility of Global Science
and Technology Forum
180 Thu Hang Nguyen / Procedia Economics and Finance 2 ( 2012 ) 179 190
Exchange is used. Hence, the goal of the paper is to examine the existence of momentum effect and the
sources of this effect in the market.
Vietnamese economy has witnessed a robust growth following the Doi Moi (renovation) policy in 1986.
Besides, the stock market has experienced a significant jump since its establishment in 2000. The
development of the Vietnamese economy and its stock market has attracted attention of many policy makers,
investors and researchers in Vietnam and from abroad as well. However, the number of empirical researches
on the market is still limited. Some literature such as Fernandes and Ornelas, 2008, Griffin et al., 2003 and
Rouwenhorst, 1999 show evidence of the momentum effect in the emerging markets including Asia, except
Vietnam. Hence, studying the momentum effect in the Vietnamese stock market might supplement prior
literature with further evidence on the effect from a young but fast growing market, filling the geographical
gap of the prior researches.
The empirical results show that after being controlled for the Fama- French three factors, the momentum
effect occurs in the very short run (one week). However, further tests by specific periods, by sizes show poor
performance of the momentum profit. Additionally, a test on the relationship between momentum profit and
market states provides some insights into the causes of this poor performance. Even so, the market states
cannot fully explain the sources of the momentum profit. Finally, a test on the profits of the winner-minus-
loser (WML) portfolio up to 26 weeks after ranking indicates that the positive and the insignificant or
negative momentum profit may be explained by the overconfidence and the less confidence of the investors,
respectively.
The structure of this paper is as follows: section 2 gives a brief review of prior studies on the momentum
effect and its explanations, section 3 introduces the data and the methodology to be employed, section 4
provides some empirical results and the last section concludes some findings.
2. Previous research
2.1. Evidence on the momentum effect
Jegadeesh and Titman, 1993 allocate stocks into relative strength strategies based on their returns over the
past three, six, nine or twelve months and traces the returns on these strategies over three, six, nine and twelve
months. The empirical results for a sample of the US monthly data indicate that all returns on the strategies
formed above are significantly positive except the return on the strategy that is formed based on stock returns
over three months, held for three months, with a week skipped. Jegadeesh and Titman, 2011 continue to
examine the momentum profits in recent years and discover that the profits are negative in 2008 and 2009.
Evidence on the momentum effect is also found in the European markets (Rouwenhorst, 1998), and in the
emerging markets (Fernandes and Ornelas, 2008, Griffin et al., 2003, Nikhil et al., 2009 and Rouwenhorst,
1999). However, some of these studies indicate that the performance of momentum in Asian countries is very
poor (Fernandes and Ornelas, 2008, Griffin et al., 2003, and Rouwenhorst, 1999).
Gutierrez and Kelley, 2008 employ a similar approach, but for a weekly sample of the US market and find
a strong reversal in the first two weeks after portfolio formation. However, this effect quickly disappears in
the third week and momentum effects occur from week 3 to week 52 after portfolio formation.
2.2. Explanations for the momentum effect
The interpretation of the momentum effect has been widely discussed among researchers for decades.
Many researches attribute the momentum profit to the systematic risk, firm size or firm characteristics.
Consequently, prior studies often control for market risk, firm size and book-to-market equity by employing
181 Thu Hang Nguyen / Procedia Economics and Finance 2 ( 2012 ) 179 190
the Fama-French three-factor model when examining the momentum profit (Fernandes and Ornelas, 2008,
Gutierrez and Kelley, 2008, Jegadeesh and Titman, 2001, Nikhil et al., 2009 and Rouwenhorst, 1998).
However, the findings show that the momentum profit is still significantly positive after being controlled for
these factors.
The evidence that the systematic risk, firm size or firm characteristics cannot capture well the momentum
profits gives rise to the development of the behavioral finance theory. The models in this theory utilize two
main behaviors of investors to explain the momentum profits: under-reaction and overreaction of stock prices
to news such as earning news.
Initially, Jegadeesh and Titman, 1993 argue that the momentum profits might relate to market under-
reaction to the firm-specific information. Barberis et al., 1998 propose that the conservatism of investors
produce the under-reaction of stocks prices to news such as earnings announcement. Additionally, Hong and
Stein, 1999 explain that the momentum or reversal effect in asset markets might be regarded as results of
interaction between news watchers and momentum traders the two types of agents in the market. If
information spreads gradually across news watchers, i.e., price under-reaction occurs in the short-run, thus
momentum traders can earn profit. However, their attempts to trace profit might push up the prices above the
fundamental values, i.e. overreaction happens and leads to the fundamental reversals in the long-run.
On the other hand, Daniel et al. 1998 suggest that the overreaction of stock prices to news gives rise to the
momentum profits. The study argues that due to overconfidence, the informed investors push up the prices of
the winners above their fundamental values, leading to the momentum profits. However, when investors
observe future news and realize their errors, the stock prices will reverse to their fundamentals in long run,
resulting in the long-term reversals.
3. Data and methodology
3.1. Data
The study uses a sample of simple weekly returns of stocks listed on Hochiminh Stock Exchange (HOSE)
for the period between 2007 and 2010. The data was provided by iTrade corporation- a firm specializing in
data and technical analysis tools in the Vietnamese stock market. The number of stocks in the sample ranges
from 77 (at the beginning of 2007) to 239 (at the end of 2010). In addition, since the study utilizes closing
prices determined by call-auctions, the problem of bid-ask spread as mentioned in previous literature is not a
concern.
As the prices have already been adjusted for dividend payment and stock split, the simple weekly return on
each security is calculated based on the closing prices from Wednesday to the following Wednesday. The
market index, namely VN-Index calculated by a capitalization-weighted average of all the companies listed
on the HOSE is employed as a proxy for the market portfolio. An equivalent weekly rate of the five year-
Treasury bond with an assumption that there are 52 weeks in a year is adopted as a proxy for risk-free rate.
Since the Treasury bonds in Vietnam are not traded continuously, the study regards the minimum among
accepted yields of bond auctions which are conducted in a month as the rate of that month. For the months in
which no auction is implemented or succeeded, the rate of previous month is applied alternatively.
3.2. Methodology
In this study, a similar methodology to the one employed in Gutierrez and Kelley, 2008 is utilized. All
stocks in week t are ranked from the highest to the lowest based on that weeks return, divided into five
quintiles. The stocks in the highest quintile are named winner and the stocks in the lowest are named
182 Thu Hang Nguyen / Procedia Economics and Finance 2 ( 2012 ) 179 190
loser. Winner and loser portfolios are formed by allocating an equal weight across all component stocks. A
portfolio that buys the winner portfolio and sells the loser portfolio is formed at week t and hold for J weeks.
This is regarded as winner-minus-loser (WML) portfolio. We call profit on the WML portfolio because it is a
costless investment strategy, its return is not determined.
Like prior literature, in order to increase the test power, overlapping profits in a given calendar week are
also examined. The raw, CAPM adjusted and Fama-French adjusted overlapping profits on these WML
portfolios are employed as a metric to test the momentum of the market. If the profit is significantly positive,
the momentum occurs, otherwise, it does not exist. As the number of observations in the data is limited, the
profits on WML portfolios which are held for one, two, three, four, six, eight, thirteen and twenty six weeks
are examined.
4. Empirical results
4.1. Evidence on the momentum effect
Table 1. Momentum profits.
Holding periods (weeks) Raw profits CAPM-alphas
Fama-French three factor
model alphas
1
0.0113***
(2.80)
0.0099**
(2.45)
0.0069*
(1.67)
2
0.0080***
(2.62)
0.0063**
(2.03)
0.0042
(1.32)
3
0.0057**
(2.31)
0.0040
(1.59)
0.0019
(0.79)
4
0.0045**
(2.06)
0.0027
(1.24)
0.0005
(0.23)
6
0.0031*
(1.82)
0.0014
(0.80)
-0.0006
(-0.40)
8
0.0021
(1.44)
0.0005
(0.29)
-0.0018
(-1.51)
13
0.0016
(1.40)
-0.0001
(-0.12)
-0.0021**
(-2.48)
26
0.0003
(0.29)
-0.0015
(-1.51)
-0.0034***
(-4.73)

(***), (**), (*) indicate significance at the 1%, 5% and 10% level, respectively. t-statistics are presented in parentheses.

The raw profits on the WML portfolios in Table 1 show that the momentum profit is significantly positive
over the holding periods from one to six weeks. The momentum profit achieves its biggest value of 1.13
percent per week for one week holding and decreases across the length of holding period. It is not
significantly different from zero for the periods longer than six weeks. The CAPM alphas reveal that the
momentum profit is still significantly positive for one and two- week holding periods after being controlled
for market risk. It tends to decrease and becomes negative but insignificant from thirteen-week holding.
Furthermore, the Fama-French alphas show that the momentum profit is significantly positive for only one
week-holding after being controlled for the three factors. It decreases and becomes negative from the six-
183 Thu Hang Nguyen / Procedia Economics and Finance 2 ( 2012 ) 179 190
week holding. Moreover, the profits on the WML portfolios which are held for 13 and 26 weeks are
significantly negative. This finding provides a hint for a further research on the reversal effect for longer time
horizons in the Vietnamese stock market.
In a nutshell, after being controlled for the three factors, only the profit on the WML portfolio held for one
week remains significantly positive with its value of 0.69 percent per week. As mentioned earlier, this
momentum strategy is allocated in week t and liquidated in week t +1, transaction cost thus is charged twice
at buying and selling times. In the Vietnamese stock market, transaction cost often ranges from 0.1 percent to
0.5 percent of the trading volume and decreases as the trading volume increases. Hence the momentum profit
may vanish due to the transaction cost if the trading volume is small. However, the arbitrage opportunities are
often realized by traders with a huge volume of trading, thus the momentum profit may still exist even after
being controlled for transaction cost when a large volume of trading is considered. The result that the
momentum effect occurs in the very short-run (one week) seems consistent with the findings in Griffin et al.,
2003 and Rouwenhorst, 1999 showing poor or insignificant momentum profits in emerging markets and
Asian markets.
4.2. Sources of the momentum effect
4.2.1. Momentum profits by sizes and by periods

As mentioned earlier, after being controlled for the three factors, only the profit on the WML portfolio held
for one week is significantly positive, for brevity, the profitability of this portfolio is further examined to
explain some sources of the effect.
In order to prevent market declines from being affected by the global crisis, the State Securities
Commission of Vietnam temporarily employed a regulation of daily price fluctuation of (+/-) 1 percent, (+/-)
2 percent, (+/-) 3 percent in succession during the period from 27/3/2008 to 18/8/2008 in the HOSE, whereas
its usual daily price fluctuation is (+/-) 5 percent. Furthermore, the movement of VN Index over the period
shows that the market went up in the first half of 2007, and then dropped at the end of the year. It sharply
decreased in 2008, recovered in 2009 and remained sluggish in 2010. Thus, testing the momentum effect in
four periods separately is needed in order to avoid bias occurring due to the market states and the regulation
of daily price fluctuation limit. Moreover, prior studies often argue that the reversal or momentum effect
might arise due to the firm size, which, thus, should be controlled when we examine the momentum profit.
At the beginning of each year, all stocks are sorted into three categories of small, medium and large size
based on their market capitalization at the end of each year. In the Vietnamese stock market, there are many
newly listed stocks in each year, thus determining firm size as the market value of firms equity at the prior
year may lose some newly listed stocks. Therefore, in this research firm size is defined as the value of firms
equity at the end of each year. Market value of firms equity at the end of each year is calculated as a product
of the market price of common stock and the number of outstanding stocks at the end of that year. After
sorting stocks into three size categories, all stocks in each category are ranked and allocated into winner and
loser portfolios based on their weekly returns.
The results in Table 2 indicate that the momentum profit for the whole sample is strongly and significantly
positive for the first two periods based on the raw profits and CAPM alphas. However, after being controlled
for the three factors, it is insignificant for the first period and marginally significant for the second one. Thus,
market risk, firm size and book-to-market equity might explain the raw momentum profits for these two
periods. Furthermore, during these two periods, the profit of the small and medium sizes is insignificant and
that of the large size is significantly positive after being controlled for the three factors. Especially, the
magnitude of the momentum profit on the large size during these periods shows a striking result, which means
184 Thu Hang Nguyen / Procedia Economics and Finance 2 ( 2012 ) 179 190
it gains 1.88 percent per week in the first period and 3 percent per week in the second one even after being
controlled for the three factors. This profit is quite larger than the transaction cost ranging from 0.1 percent to
0.5 percent depending on trading volumes in the Vietnamese stock market.
Table 2. Momentum profits by firm sizes and by periods.
Periods All Small Medium Large
2007-
27/3/2008
Raw
0.0166**
(2.47)
0.0054
(0.97)
0.0159**
(2.12)
0.0198**
(2.64)
CAPM alphas
0.0163**
(2.37)
0.0043
(0.73)
0.0150*
(1.96)
0.0195**
(2.58)
FF alphas
0.0123
(1.50)
-0.001
(-0.18)
0.0087
(0.96)
0.0188**
(2.12)
27/3/2008-
18/8/2008
Raw
0.0514***
(3.90)
0.0465**
(2.85)
0.0483***
(3.12)
0.0582***
(5.31)
CAPM alphas
0.0508***
(4.27)
0.0458**
(2.88)
0.0481***
(3.84)
0.0572***
(5.29)
FF alphas
0.0234
(1.74)
0.0114
(0.77)
0.0239
(1.75)
0.0309*
(1.99)
18/8/2008-
2009
Raw
0.0078
(1.29)
-0.0030
(-0.51)
0.0050
(0.83)
0.0139*
(1.94)
CAPM alphas
0.0057
(0.98)
-0.0050
(-0.92)
0.0030
(0.52)
0.0119
(1.66)
FF alphas
0.0058
(0.91)
-0.0045
(-0.76)
0.0038
(0.65)
0.0123
(1.55)
2010
Raw
-0.0046
(-1.29)
-0.0075
(-1.3)
-0.0067*
(-1.89)
-0.0020
(-0.55)
CAPM alphas
-0.0067*
(-1.86)
-0.0095
(-1.54)
-0.0090**
(-2.50)
-0.0044
(-1.23)
FF alphas
-0.0071*
(-1.80)
-0.0091
(-1.37)
-0.0082**
(-2.13)
-0.0056
(-1.41)
Note: (***), (**), (*) indicate significance at the 1%, 5% and 10% level, respectively. t-statistics are presented in parentheses.

During the third period of 18/8/2008 to 2009, the momentum profits for the whole sample and all sizes
except the raw profit of the large size are insignificantly different from zero. This is regarded as a highly
fluctuated period for the investors. Hit by the Lehmann shock, the market index fell to its lowest level of 234
points in four years in February, 2009 and considerably recovered in the following eight months thanks to the
ease monetary policy. However, in the months at the end of 2009, in order to curb inflation, the Vietnamese
government changed from the ease monetary policy to a tight one, hence leading to a market decline at the
end of this year. Thus, the market volatility and the ailing investors belief might explain the insignificant
momentum profits in this third period and a further test on the relationship between momentum profit and
market states is presented in the following section.
Finally, in 2010 the momentum strategies experience negative profits for the whole sample and all sizes.
Moreover, the profits are significantly negative for the whole sample and medium size after being controlled
185 Thu Hang Nguyen / Procedia Economics and Finance 2 ( 2012 ) 179 190
for the three factors. The negative momentum profit in 2010 is somewhat similar to what observed in
Jegadeesh and Titman, 2011 in 2009 for the US market. Like the argument in Jegadeesh and Titman, 2011,
the negative momentum profit in 2010 might be attributed to the market volatility and weak investors belief;
a further test thus should be implemented in the next sections.
In conclusion, after classifying into four periods, into three sizes, the empirical results show the poor
performance of the momentum which also accord with the results found in the studies on the emerging
markets and Asian markets (Griffin et al., 2003 and Rouwenhorst, 1999). Du et al., 2009 indicate that the poor
performance of the momentum strategies in the Taiwan stock market may be attributed to the DOWN state-
dependence of the momentum and there are more DOWN market states in Taiwan than in developed markets.
The next section employs the similar method to provide some insights into the poor performance of the
profits.
4.2.2. Momentum profit and market states

Unlike Cooper et al., 2004 and Du et al., 2009, which use the lagged one-year, two-year or three-year
market returns to determine market states, due to the limitation of the observation number, this paper defines
the market states based on the lagged eight-week market returns. The state is regarded as UP if the lagged
market return is non-negative, and as DOWN if the lagged market return is negative. As mentioned earlier,
for brevity, only the profit on the WML portfolio that is held for one week is examined. To test if the
momentum profit is equal to zero in each state, we regress the time-series of the WML portfolios profit on an
UP dummy variable and a DOWN dummy variable, with no intercept. Like Cooper et al., 2004, we also
regress the profit on an UP dummy variable in order to test the equality of the momentum profits following
UP and DOWN states. The profits include the raw, the CAPM-adjusted and the Fama-French three factor
adjusted profits. The adjusted profits can be calculated by regressing the time-series of excess - raw profit on
a constant and the appropriate factors as described in Cooper et al., 2004.
The results in Table 3 show that for the whole period and after being controlled for the three factors, the
momentum profit following UP markets is significantly positive, whereas that following DOWN markets is
insignificant. Following UP markets, it achieves 1.2 percent per week, higher than the transaction cost in the
market. Furthermore, the result in the last column indicates that the momentum profit following UP markets is
higher than that following DOWN markets, which, however, is not significant.
In addition, the momentum profit by each period indicates that it is significantly and positively correlated
to the UP markets in the first two periods, but significantly and positively correlated to the DOWN markets
only in the second one. The last column reveals that the differences between momentum profits following
both states for all periods are not significant. The momentum profit following UP markets is significantly 2
percent per week, and that following DOWN markets is insignificantly 0.62 percent per week in the first
period from 2007 to 27/3/2008 after being controlled for the three factors. However, during this period, 28
weeks (44%) are in UP markets and 35 weeks (56%) in DOWN markets. The prevalence of DOWN markets
and the insignificant profit following this state explain the poor performance of momentum strategy in the
first period in Table 2.
In the second period from 27/3/2008 to 18/8/2008, the momentum profit following UP markets is
significantly 2.05 percent per week, and that following DOWN markets is significantly 2.43 percent per week
even after being controlled for the three factors. These results explain the marginal momentum profit during
the second period in Table 2.
In the third period from 18/8/2008 to 2009, the momentum profits following both states are insignificant,
which explains the insignificant momentum during this period in Table 2.

186 Thu Hang Nguyen / Procedia Economics and Finance 2 ( 2012 ) 179 190
Table 3. Momentum profits and market states.
UP DOWN Test for Equality (UP- DOWN)
Whole
period
N 91 111
Raw
0.0180***
(2.73)
0.0058
(1.39)
0.0121
(1.63)
CAPM-alphas
0.0157**
(2.53)
0.0050
(1.17)
0.0107
(1.48)
FF-alphas
0.0120**
(1.98)
0.0027
(0.67)
0.0092
(1.33)
2007-
27/3/2008
N 28 35
Raw
0.0269**
(2.36)
0.0084
(1.49)
0.0184
(1.51)
CAPM-alphas
0.0244**
(2.43)
0.0097
(1.46)
0.0147
(1.28)
FF-alphas
0.0200*
(1.96)
0.0062
(1.04)
0.0138
(1.22)
27/3/2008-
18/8/2008
N 4 14
Raw
0.0822***
(11.52)
0.0426***
(3.13)
0.0395*
(2.41)
CAPM-alphas
0.0832***
(11.96)
0.0416***
(3.90)
0.0416***
(3.35)
FF-alphas
0.0205 ***
(2.97)
0.0243 **
(2.82)
-0.0038
(-0.41)
18/8/2008-
2009
N 37 33
Raw
0.0153
(1.58)
-0.0006
(-0.10)
0.0158
(1.43)
CAPM-alphas
0.0121
(1.32)
-0.0014
(-0.21)
0.0134
(1.23)
FF-alphas
0.0119
(1.34)
-0.0011
(-0.18)
0.0130
(1.23)
2010
N 22 29
Raw
-0.0005
(-0.12)
-0.0078
(-1.65)
0.0072
(1.22)
CAPM-alphas
-0.0029
(-0.66)
-0.0095**
(-2.03)
0.0067
(1.10)
FF-alphas
-0.0030
(-0.68)
-0.0102 **
(-2.18)
0.0072
(1.19)
(***), (**), (*) indicate significance at the 1%, 5% and 10% level, respectively. t-statistics are presented in parentheses.

187 Thu Hang Nguyen / Procedia Economics and Finance 2 ( 2012 ) 179 190
Finally, in 2010 the momentum profits following both market states are negative. The profit following UP
markets experiences a loss of 0.3 percent per week and that following DOWN markets suffers from a bigger
loss of 1.02 percent per week after being controlled for the three-factors. Furthermore, during this period, 22
weeks (43%) are in UP markets and 29 weeks (57%) in DOWN markets. Hence, the prevalence of the DOWN
markets and significantly negative profit following this state in 2010 explain the significantly negative
momentum during this year in Table 2.
In order to test the robustness of the above results, the paper also employs alternative intervals such as four
weeks and thirteen weeks to determine the market states and attains similar results on the relationship between
momentum profits and market states. For brevity, the results are not presented here.
In conclusion, except the third period from 18/8/2008-2009, there are significant relationships between the
profits and UP or DOWN or both market states. The prevalence of DOWN market states in the period from
2007 to 27/3/2008 and in 2010 can explain the insignificant and the negative profit during these two periods.
The strongly positive and the insignificant profits following both states in the second and the third periods
explain the marginally significant and the insignificant profits during these two periods, respectively.
However, the market states still cannot fully explain the sources of the profits. This motivates us to do a
further test of the price behavior to be presented in the following section.
4.2.3. Performance of the momentum profit after portfolio formation

Jegadeesh and Titman, 2001 provide an evaluation of alternative explanations for the momentum profits by
testing three hypotheses: (1) the underreaction hypothesis; (2) the delayed overreaction and price correction
one; and (3) the Conrad and Kaul hypothesis. If the profits of the momentum portfolio following the initial
formation period are zero the market underreation hypothesis will be supported. If profit reversals are
obtained in the post-holding period, the delayed overreaction and price correction hypothesis will be
endorsed. Finally, if the profits on the momentum strategy are the same in any post-holding period, the
Conrad and Kaul hypothesis will be proved.
The momentum profit up to three years after formation is examined in Jegadeesh and Titman, 1993 and the
length of the post-holding period is extended to five years in Cooper et al., 2004 and Jegadeesh and Titman,
2001. However, due to the limitation of the observation number, the momentum profits up to six months or 26
weeks following the formation week are further studied in this paper. Like Cooper et al., 2004 and Jegadeesh
and Titman, 2001, raw and risk-adjusted profits are computed, however, for brevity, only the Fama-French
alphas following UP and DOWN markets are presented in Table 4.
Table 4 reports that for the whole period, the profit on the WML portfolio following UP markets is positive
in week 1, becomes negative after the holding period. This finding supports the delayed overreaction and
price correction hypothesis proposed by Daniel et al., 1998 and Hong and Stein, 1999. It means that after
recognizing the up trends, investors who are overconfident about their ability would pick out the
outperformed stocks and push their prices up above their fundamental values in the next week, making them
revert to their fundamentals in the following weeks. However, the profit following DOWN markets reveals
that it is not significantly different from zero in week 1 and becomes negative in the following weeks. This
means that the DOWN markets make investors less confident, leading to the insignificant momentum profit in
week 1. An unreported test indicates that the WML portfolio in the ranking week earns 15.7 percent per week
after being controlled for the three factors. Hence, the significant reversals in the following weeks show the
price correction for the overreaction in the ranking periods as argued in the prior studies on the reversal effect.
Table 4 also provides more insight of the investors behavior by each period. During the first period from
2007 to 27/3/2008, the profit on the WML portfolio following UP markets is significantly positive in week 1
and becomes negative in the following weeks, whereas that following DOWN markets is insignificant in week
188 Thu Hang Nguyen / Procedia Economics and Finance 2 ( 2012 ) 179 190
1 and turns negative in the following weeks. The implication for the investors behavior during this period is
quite similar to that of the whole period. In the second period from 27/3/2008 to 18/8/2008, the profit
following UP markets is significantly positive in week 1 and reverses since week 6, which, similarly, is
considered as the delayed overreaction and price correction. On the other hand, following DOWN markets,
after achieving a significantly positive profit in week 1, the WML portfolio continues to earn positive profits
in the next four weeks and reverses since week 6. This result reveals the strong confidence of investors due to
the administrative intervention on the stock price during the period. However, it seems difficult to conclude
that investors are more confident when the DOWN markets are recognized than the UP market.
Table 4. Profits after portfolio formation.
Week 1 Week 2-5 Week 6-9 Week 10-13 Week 14-26
Average weekly profits following UP markets
Whole period 0.0120**
(1.98)
-0.0007
(-0.36)
-0.007***
(-3.16)
-0.0047*
(-1.88)
-0.0048***
(-4.59)
2007- 27/3/2008 0.0196*
(1.83)
0.0020
(0.46)
-0.0044
(-0.98)
-0.0063
(-0.95)
-0.0060**
(-2.62)
27/3/2008-18/8/2008 0.068***
(12.42)
0.0085
(1.00)
-0.0232***
(15.79)
-.018***
(-7.19)
-0.00002
(-0.01)
18/8/2008-2009 0.0086
(0.89)
-0.0023
(-0.88)
-0.01***
(-2.94)
-0.0049
(-1.50)
-0.0069***
(-4.55)
2010 -0.0023
(-0.55)
-0.0026
(-1.12)
-0.0024
(-0.96)
-0.0002
(-0.09)
-0.0012
(-1.03)
Average weekly profits following DOWN markets
Whole period 0.0027
(0.67)
-0.0032*
(-1.87)
-0.0033***
(-3.18)
-0.0007
(-0.64)
-0.0048***
(-5.94)
2007- 27/3/2008 0.0060
(1.00)
-0.004**
(-2.50)
-0.0034*
(-1.94)
0.0008
(0.29)
-0.0048**
(-2.63)
27/3/2008-18/8/2008 0.038***
(3.43)
0.0102**
(2.21)
-0.0011
(-0.51)
-0.0012
(-0.72)
-0.0057**
(-2.45)
18/8/2008-2009 -0.0030
(-0.50)
-0.007***
(-3.28)
-0.0034**
(-2.29)
-0.0003
(-0.19)
-0.0054***
(-3.88)
2010 -0.012**
(2.41)
-0.0041
(-1.31)
-0.0041
(-1.53)
-0.0026
(-1.61)
-0.0036***
(-4.65)
(***), (**), (*) indicate significance at the 1%, 5% and 10% level, respectively. t-statistics are presented in parentheses.

In the third period, the profit following UP markets is insignificantly positive in week 1 and becomes
negative in the following weeks, whereas that following DOWN markets is insignificantly negative in week 1
and remains negative in the following weeks. Similarly, in the final period, the profits following both states
are negative and remain negative in the following weeks. These findings confirm the less confidence of the
investors in 2009 and 2010. An unreported test reveals that in the ranking week the WML portfolio earns 18.3
percent in the third period and 13.6 percent in 2010. Hence, the significantly negative profits in the following
189 Thu Hang Nguyen / Procedia Economics and Finance 2 ( 2012 ) 179 190
weeks after ranking show the price correction for the overreaction in the formation week. However, the
insignificantly negative profits following UP markets in 2010 cannot be explained by this.
In conclusion, Table 4 puts forward a clearer explanation on the source of the momentum profit. While the
momentum profit following UP markets in the first period and that following both states in the second period
reveal the overconfidence of the investors, the insignificant or negative profit following UP or DOWN states
in the remaining periods show the less confidence of the investors. However, the investors more confidence
when the DOWN markets are recognized in the second period from 27/3/2008 to 18/8/2008 and the
insignificant profit following UP markets after ranking in 2010 are still quizzes.
5. Conclusion
Employing a sample of weekly data in the Vietnamese stock market, the study discovers that after
controlling for the three factors, the momentum effect occurs in the very short run (one week). The
momentum strategy which is held for one week produces a significant profit of 0.69 percent per week for the
whole sample. This profit is still higher than the transaction cost when a large volume of trading is being
considered. However, further tests by specific periods, by sizes show the poor performance of the momentum.
Additionally, a test on the relationship between momentum profits and market states provides some insights
into this poor performance. Even so, the market states cannot fully explain the causes of the profit. Finally, a
test on the profits on the WML portfolio up to 26 weeks after ranking indicate that the positive and the
insignificant or negative momentum profit may be explained by the overconfidence and the less confidence of
the investors, respectively. However, the investors more confidence when the DOWN markets are recognized
in the second period from 27/3/2008 to 18/8/2008 and the insignificant profit following UP markets in 26
weeks after ranking in 2010 remain unexplained.
Acknowledgments
I am indebted to my supervisor, Professor Pascal Alphonse from Lille 2 University of Law and Health for
his guidance and advice during the writing of this paper. Of course, I am solely responsible for any remaining
errors.
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