Citation for published version (APA): Loc, T. D. (2006). Equitisation and stock-market development: the case of vietnam Groningen: s.n.

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1 Universiy of Groningen Equiisaion and sock-marke developmen Loc, T.D. IMPORTANT NOTE: You are advised o consul he publisher's version (publisher's PDF) if you wish o cie from i. Please check he documen version below. Documen Version Publisher's PDF, also known as Version of record Publicaion dae: 2006 Link o publicaion in Universiy of Groningen/UMCG research daabase Ciaion for published version (APA): Loc, T. D. (2006). Equiisaion and sock-marke developmen: he case of vienam Groningen: s.n. Copyrigh Oher han for sricly personal use, i is no permied o download or o forward/disribue he ex or par of i wihou he consen of he auhor(s) and/or copyrigh holder(s), unless he work is under an open conen license (like Creaive Commons). Take-down policy If you believe ha his documen breaches copyrigh please conac us providing deails, and we will remove access o he work immediaely and invesigae your claim. Downloaded from he Universiy of Groningen/UMCG research daabase (Pure): hp:// For echnical reasons he number of auhors shown on his cover page is limied o 0 maximum. Download dae:

2 Chaper 9 Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke 9.. Inroducion As presened in Chaper 8, he Vienamese sock marke is no efficien in he weak form. This evidence implies ha sock price anomalies could be presen in he marke so ha invesors can earn abnormal reurns by using a rading sraegy based on pas informaion. Among such anomalies, he day-of-he-week and overreacion effecs are seen as he mos imporan paerns and have been exensively sudied and documened in he financial lieraure for he las decades. However, no sudy has been found on his issue for he Vienamese sock marke. This chaper ries o enrich he lieraure by esing for he exisence of hese effecs in he Vienamese sock marke. The remainder of his chaper is organised as follows. Secion 9.2 deals wih he day-of-he-week effec on sock reurns and sock volailiy. Then, he sock marke overreacion is invesigaed in Secion 9.3. Finally, Secion 9.4 concludes he chaper Day-of-he-week effec on sock reurns and sock volailiy The day-of-he-week effec indicaes ha reurns are abnormally higher on some days of he week han on oher days. Specifically, resuls derived from many empirical sudies have documened ha he average reurn on Friday is abnormally high, and he average reurn on Monday is abnormally low. In his secion, he dayof-he-week effec on boh reurns and volailiy is closely examined for he VNINDEX (he marke index of he Vienamese sock marke).

3 Equiisaion and Sock-Marke Developmen Empirical lieraure review This sub-secion reviews he findings from empirical sudies on he day-of-heweek effec in boh developed and emerging sock markes. Because i is no possible o lis all he relevan sudies here, he review jus focuses on hose which are supposed o be re-presenable for his field. For he reason of convenience, he empirical evidence on he daily seasonal anomaly in developed and emerging sock markes are separaely examined. A summary of hese sudies is given in Table 9. and Table 9.2. Day-of-he-week effec in developed sock markes I is observed ha he day-of-he-week effec on sock reurns is primarily repored for he U.S. sock marke. Indeed, French (980), Gibbon and Hess (98), Condoyanmi e al. (987), Jaffe and Weserfield (985), Dubois and Louve (996) documen ha he mean reurn is significanly negaive on Monday, bu i is significanly posiive on Friday. Similarly, a daily seasonal anomaly is found in he Canadian sock marke wih a negaive Monday and posiive Friday effec as observed in he U.S. sock marke [Jaffe and Weserfield (985), Condoyanmi e al. (987), Dubois and Louve (996) and Kiymaz and Berumen (2003)]. In Europe, he day-of-he-week effec is observed in all developed sock markes. In fac, a significan negaive Monday effec is repored for he U.K., Germany, France, and Swizerland, and a significan posiive Friday effec is observed in France [Jaffe and Weserfield (985), Condoyanmi e al. (987), Dubois and Louve (996) and Kiymaz and Berumen (2003)]. In addiion, a significan negaive mean reurn on Tuesday is repored for he U.K. Germany, France, Ausria and he Neherlands [Jaffe and Weserfield (985), Condoyanmi e al. (987), Balaban e al. (200)]. Moreover, a negaive Friday effec is abnormally idenified for Germany and Ausria [Balaban e al. (200)]. Turning o sock markes in he Pacific Rim region, i is eviden ha he highes mean reurn is observed on Friday while he lowes mean reurn occur on Tuesday for boh he Japanese and Ausralian sock markes occur on Tuesday [Jaffe and Weserfield (985), Condoyanmi e al. (987) and Dubois and Louve (996)]. The findings of negaive Tuesday effec in hese markes are compleely differen from hose derived from he empirical sudies in he U.S. sock marke. According o Jaffe and Weserfield (985), he negaive Tuesday effec in he Japanese and Ausralian sock markes could resul from he ime zone differences beween such markes and he U.S. marke. However, heir empirical evidence indicaes ha he ime zone difference could only explain he daily seasonal anomaly in he 82

4 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke Ausralian sock marke, bu i is no able o explain he day-of-he-week effec in he Japanese one. I is clear ha he day-of-he-week effec is presen in all papers ha are reviewed above. Furher, some sudies have ried o bring various explanaions for he dayof-he-week effec. Lakonishok and Levi (982) argue ha he day-of-he-week effec can be parly derived from he delay beween rading and selemens in socks and in clearing checks. Specifically, hey explain ha he buyer will have eigh calendar days before losing funds for sock purchases on a business day oher han Friday based on rules of he U.S. sock marke while for Friday purchases, he buyer will have en calendar days. In oher words, he buyer has wo more days of ineres earning. Therefore, he buyer would be willing o pay exra for socks bough on Fridays. Anoher explanaion for he daily seasonal anomaly, proposed by Forune (99) is ha companies and governmens end o release good news during marke rading when i is easily absorbed, and keep bad news unil he close on Friday when invesors can no reac o he informaion unil he Monday opening. Furhermore, according o Keim and Sambaugh (984), measuremen errors would parly conribue o he weekend effec. They hypohesise ha he low Monday reurns could resul from posiive errors in prices on Friday. However, none of hese sudies can provide saisfacory explanaions for he daily seasonal anomaly (Chen e al., 200; Oguzsoy and Guven, 2003). I is imporan o noe here ha mos surveyed sudies invesigae he daily seasonal anomaly for he periods before 990. In he mos recen period, Kohers e al. (2004) find ha he day-of-he-week effec has disappeared in mos developed sock markes. Specifically, hey documen ha he daily seasonal anomaly is observed in he U.S., Japan, he U.K., France, Germany, Canada, Ialy, he Neherlands, Swizerland, and Ausralia for he period from 980 o 990, bu conversely i is no longer in all markes, excep Japan, during he period beween 99 and These findings indicae ha long-erm improvemens in marke efficiency would have diminished he day-of-he-week effec on sock reurns. Beside day-of-he-week effec on sock reurns, he day-of-he-week effec on sock volailiy is also documened in he lieraure. Indeed, Balaban e al. (200) find ha day-of-he-week effec on volailiy is presen in Ausria, Belgium, Denmark, France, Ialy, Norway, Swizerland, and he U.S. for he period from July 993 o July 998. Specifically, a significan negaive effec is observed on Tuesday for Belgium, Denmark, France, Ialy and Swizerland, on Wednesday and Thursday for Ialy, and on Friday for Ialy and Norway while a posiive effec on Tuesday is repored for Ausria, on Thursday for Ausria, Denmark and he U.S. In addiion, Berumen and Kiymaz (200) show ha he lowes and highes volailiy occurs on Wednesday and Friday respecively for reurns of he S&P 500. Furhermore, Kiymaz and Berumen (2003) documen he highes Monday volailiy for Japan 83

5 Equiisaion and Sock-Marke Developmen and Germany, he highes Thursday volailiy for he U.K., and he highes Friday volailiy for he U.S. and Canada. Day-of-he-week effec in emerging sock markes A number of empirical sudies on he daily seasonal anomaly have been recenly conduced in emerging sock markes. In Easern European sock markes, Poshakwale and Murinde (200) repor ha he day-of-he-week effec does no exis in Budapes and Warsaw sock exchanges during he period of Moreover, Ajayi e al. (2004) find ha he day-of-he-week effec is presen in only four of eleven sudied markes (Esonia, Lihuania, Russia and Slovenia). Specifically, he significanly negaive Monday effec is observed in Esonia and Lihuania while posiive Monday and Friday effecs are found in Russia and Slovenia respecively. Furhermore, regarding he Turkish sock marke, Balaban (995) documens ha mean reurn is significanly highes on Friday for he period from January 988 o Augus 994. Then, Oguzsoy and Guven (2003) reexamine he daily seasonal anomaly in his marke by exending he sudied period o November 999 and find ha he Turkish sock marke exhibis he significan negaive effec on Monday and Tuesday and posiive effec on Friday. Turning o he Asian region, i is surprising o find ha he day-of-he-week effec is no presen in he Taiwanese sock marke for he early sage from 975 o 988 [Wong e al. (992)], bu i exiss in he recen periods, from January 990 o June 995 wih a significanly negaive mean reurn on Tuesday [Choudhry (2000)] and from December 989 o January 996 wih he negaive average reurn on Wednesday [Brooks and Persand (200)]. Moving o he Souh Korea sock marke, he empirical evidence on daily seasonal anomaly is mixed. Indeed, Choudhry (2000) repor ha he day-of-he-week effec exiss in Souh Korea wih a negaive effec on Tuesday while Brooks and Persand (200) find no evidence o suppor he presence of day-of-he-week effec in his marke. The difference in findings beween he wo sudies may resul from he differen mehods used in hese sudies because he daa employed in hese sudies are almos he same. In China, Mookerjee and Yu (999) documen ha a significan posiive effec on Thursday and Friday is presen in he Shanghai Securiies Exchange, bu he daily seasonal anomaly does no exis in he Shenzhen Securiies Exchange for he period beween April 99 and April 994. Finally, he Indian sock marke exhibis a posiive effec on Friday [Choudhry (2000)]. 84

6 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke Table 9.: Summary of empirical sudies on he day-of-he-week effec in developed sock markes Sudy Mehodology Daa Main findings French (980) The OLS mehod wih dummy variables for each day of he week Daily reurns of S&P 500 for he period beween 953 and 977 Significan negaive Monday effec and posiive Wednesday, Thursday and Friday effec Gibbons and Hess (98) The OLS mehod wih dummy variables for each day of he week Daily reurns of he S&P 500, he value- and equal-weighed porfolios consruced by he Cener for Research in Securiies Prices (CRSP) over he period from Jul o Dec. 28, 978 Negaive mean reurn on Monday Jaffe and Weserfield (985) The OLS mehod wih dummy variables for each day of he week Daily reurns for sock marke index of Japan, Canada, Ausralia, he U.K., and he U.S (S&P 500) during he period of , , , , and respecively. Significan negaive Monday effec in he U.S., Canada and he U.K.; negaive Tuesday effec in Japan and Ausralia and he U.K.; and posiive Friday effec in all he markes, excep he U.K. Condoyanni, e al. (987) The OLS mehod wih dummy variables for each day of he week Daily reurns for sock marke index of he U.S., Canada, he U.K., France, Ausralia, Japan and Singapore for he period (excep Ausralia from ) A significanly negaive Monday mean reurn o be observed in he U.S., Canada and he U.K, bu a significanly Monday posiive effec in Japan; a significanly negaive Tuesday effec o be presen in France, Ausralia, Japan and Singapore; and a significanly posiive Friday effec for Canada, France, Ausralia and Singapore 85

7 Equiisaion and Sock-Marke Developmen Table 9.: Coninued Dubois and Louve (996) Berumen and Kiymaz (200) Balaban, e al. (200) Parameric and nonparameric ess wih he null hypohesis ha mean reurns of each day in he week are equal The OLS, GARCH (,) and modified GARCH (,) models wih dummy variables for each day of he week in boh reurn and variance equaions GARCH(,)-M wih dummy variables for each day of he week in boh reurn and variance equaions Daily reurns for sock marke indexes in 9 developed counries (Canada, he U.S., Japan, Hong Kong, Ausralia, Germany, France, Swizerland, and he U.K. from Jan. 2, 969 o Dec. 30, 992 Daily reurns of he S&P 500 during he period from Jan. 973 o Oc. 997 Daily reurns of sock marke indexes for 9 counries (Ausralia, Ausria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ialy, Japan, he Neherlands, New Zealand, Norway, Spain, Sweden, Swizerland, he U.K., and he U.S. over he period from Jul. 20, 993 o Jul., 998. Significan negaive Monday effec for he sock marke indexes in Canada, he U.S., Germany, France, he U.K., Swizerland and Hong Kong; negaive Tuesday effec for Japan and Ausralia; and posiive Friday effec for mos he markes The day-of-he-week effec o be presen in boh marke reurns and volailiy: he significanly lowes and highes mean reurns on Monday and Wednesday, and he lowes and highes volailiy on Wednesday and Friday respecively Day-of-he-week effec on reurns o be presen in Ausria, Germany, Hong Kong, Japan, he Neherlands, and New Zealand wih specific resuls as follows: significan negaive Tuesday effec o be found in Ausria, Germany, and Neherlands; posiive Tuesday effec in Japan; negaive Friday effec in Ausria and Germany Day-of-he-week effec on sock marke volailiy o be observed in Ausria, Belgium, Denmark, France, Ialy, Norway, Swizerland, and he U.S.: significan negaive effec on Tuesday for Belgium, Denmark, France, Ialy and Swizerland, on Wednesday and Thursday for Ialy, and on Friday for Ialy and Norway; posiive effec on Tuesday for Ausria, on Thursday for Ausria, Denmark and he U.S. 86

8 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke Table 9.: Coninued Kiymaz and Berumen (2003) Kohers, e al. (2004) The OLS, GARCH (,) and modified GARCH (,) models wih dummy variables for each day of he week in boh reurn and variance equaions ANOVA and Kruskal- Wallis ess o es he null hypohesis ha mean reurn is equal across days of he week Daily reurn for sock marke indexes in four developed counries (he U.S., Canada, he U.K., Germany and Japan for he period from Jan. 988 o Jun Daily reurn for sock marke indexes of developed counries (he U.S., Japan, he U.K., France, Germany, Canada, Ialy, he Neherlands, Swizerland, Hong Kong, and Ausralia) during he period from Jan. 980 o Jun A significanly negaive Monday mean reurn in Canada, Japan and he U.K.; he significanly highes volailiy of marke reurns o be observed on Monday for Japan and Germany, on Thursday for he U.K., and on Friday for he U.S. and Canada Daily seasonal anomaly o be presen in all he markes (excep Hong Kong) for he period from 980 o 990, bu conversely he day-of-he-week effec o be no longer in all cases (excep Japanese case) over he period The firs period: a significanly negaive Monday effec o be observed in he U.S., he U.K., France, Canada, Ialy, he Neherlands, and Swizerland; a negaive Tuesday effec in Japan, France, Ialy, Swizerland and Ausralia The second period: a significanly negaive Monday reurn exhibied in Japan The main conclusion o be drawn from his sudy as ha long-erm improvemens in marke efficiency would have diminished he day-of-he-week effec on sock reurns 87

9 Equiisaion and Sock-Marke Developmen Table 9.2: Summary of empirical sudies on he day-of-he-week effec in emerging sock markes Sudy Mehodology Daa Main findings Wong e al. (992) Non-parameric ess for he difference in mean reurns across days of he week Daily daa for sock marke indexes of Singapore, Malaysia, Hong Kong, Taiwan and Thailand over he period Day-of-he-week effec o be presen in all marke (excep Taiwan) wih specific resuls as follows: he negaive Monday effec in Singapore, Malaysia and Hong Kong; he negaive Tuesday effec in Thailand, and Friday posiive effec in he four markes Balaban (995) The sandard OLS mehod Daily daa of he Isanbul Securiies Exchange Composie Index for he period beween Jan. 4, 988 and Aug. 5, 994 Significan posiive Wednesday and Friday effec Wong and Yuano (999) Non-parameric es and he sandard OLS mehod Daily reurns of he Jakara Composie Index (Indonesia) over he period from Apr., 983 o May 30, 997 Significan negaive and posiive effec for Tuesday and Friday respecively Mookerjee and Yu (999) The OLS mehod wih dummy variables for each day of he week Daily sock marke indexes of he Shanghai and Shenzhen securiies exchanges for he period from Dec. 9, 990 and Apr. 3, 99 respecively o Apr., 994 Significan posiive Thursday and Friday effecs in he Shanghai securiies exchange, bu no day-of-he-week effec in he Shenzhen securiies exchange for he whole sudied period Choudhry (2000) GARCH (,) model Daily reurns for sock marke index of India, Souh Korea, Taiwan, Indonesia, Malaysia, he Philippines, and Thailand during he period from Jan. 990 o Jun. 995 Significan negaive Monday mean reurn in Indonesia, Malaysia and Thailand; negaive Tuesday mean reurn in Souh Korea, Taiwan and Thailand; and posiive Friday mean reurn in India, Malaysia, he Philippines and Thailand Significan posiive Monday effec on volailiy in all markes excep India, negaive Friday effec in he Philippines 88

10 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke Table 9.2: Coninued Brooks and Persand (200) Poshakwale and Murinde (200) Chusanachoi and Kamah (2002) Oguzsoy and Guven (2003) Lian and Chen (2004) The OLS model wih and wihou including marke risk facors GARCH-M model The sandard OLS and GARCH (,) mehods The sandard OLS mehod The sandard OLS and GARCH models Daily reurns for sock marke indexes of Souh Korea, Malaysia, Thailand, Taiwan, and he Philippines over he period beween Dec. 989 and Jan. 996 Daily daa of sock marke indexes in Hungary and Poland for he period from Jan. and Apr. 6, 994 respecively o Jun. 30, 996 Daily reurns for he index of he Sock Exchange of Thailand during he period from Jan. 990 o Dec. 998 Daily reurns of he Isanbul Securiies Exchange Composie Index for he period from Jan. 8, 988 o Nov Daily reurns for sock marke index of five ASEAN counries (Indonesia, Malaysia, he Philippines, Thailand and Singapore) over he period from Jan. 992 o Aug. 2002, including hree subperiods: pre-crisis, crisis and pos-crisis Day-of-he-week effec exising in hree of he five markes (Malaysia, Thailand and Taiwan): a posiive Monday mean reurn in Thailand and Malaysia, and a negaive Wednesday effec in Taiwan Average risk levels varying across he days of he week ha parly explain for he day-of-heweek effec No day-of-he-week effec in hese markes The significan lowes and highes mean reurn for Monday and Friday respecively, a negaive effec also o be observed for Tuesday and Thursday Significan negaive mean reurn on Monday and Tuesday, bu posiive mean reurn on Friday Pre-crisis period: significan negaive Monday effec in Malaysia, Singapore and Thailand; posiive Friday effec for Indonesia, and posiive Wednesday and Thursday for he Philippines Crisis period: No daily seasonal anomaly for all markes Pos-crisis period: significan negaive Monday and posiive Friday effec in Thailand, and significan negaive Tuesday effec in he Philippines 89

11 Equiisaion and Sock-Marke Developmen Table 9.2: Coninued Ajayi, e al. (2004) The sandard OLS mehod Daily reurns of sock marke indexes in Easern European counries (Croaia, he Czech Republic, Esonia, Hungary, Lavia, Lihuania, Poland, Romania, Russia, Slovakia and Slovenia) for he period from he incepion of each marke index o Sep. 6, 2002 (he longes and shores period as from Sep., 994 and Jul. 20, 999 respecively o Sep. 6, 2002) Significan negaive Monday effec in Esonia and Lihuania, posiive Monday effec in Russia, negaive Tuesday effec in Lihuania, and posiive Friday effec in Slovenia 90

12 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke In ASEAN, he day-of-he-week effec is likely o be presen in all sock markes for a cerain period. Indeed, he Singapore sock marke exhibis a negaive Monday and posiive Friday effec for he period of and only a negaive Monday effec for he period from January 992 o January 997 [Wong e al. (992), and Lian and Chen (2004) respecively], bu no day-of-he-week effec for he period from February 997 o Augus 2002 [Lian and Chen (2004)]. The findings indicae ha improvemens in marke efficiency over ime may have faded away he daily seasonal anomaly effec on sock reurns. In Thailand, Wong e al. (992), Choudhry (2000), Chusanachoi and Kamah (2002) and Lian and Chen (2004) find ha he mean reurns are significan negaive on Monday and Tuesday, bu posiive on Friday. These resuls are consisen wih hose obained from he sudies in he developed sock markes. Moreover, Brooks and Persand (200) repor a significanly posiive Monday effec for Thailand over he period from December 989 o January 996. Similar o hese ASEAN sock markes, he negaive Monday and posiive Friday effecs are observed in he Malaysian sock marke [Wong e al. (992), Choudhry (2000)]. Furhermore, Wong e al. (992), Wong and Yuano (999), Choudhry (2000), and Lian and Chen (2004) find ha he negaive effec on Monday and Tuesday and posiive Friday effecs exis in he Jakara Composie Index (Indonesia). Finally, he empirical evidence on he day-ofhe-week effec in he Philippines sock marke is mixed. Specifically, Choudhry (2000) and Lian and Chen (2004) repor he posiive Friday and negaive Tuesday mean reurns for he period from January 990 o June 995 and from Ocober 998 o Augus 2002 respecively while Brooks and Persand (200) show no dayof-he-week effec in he Philippines sock marke. Like he case of Souh Korea, he difference may due o he differen mehods employed in hese sudies. I is clear ha he daily seasonal anomaly in emerging sock markes has received special aenion recenly. However, no sudy has been found on his issue for he Vienamese sock marke. Therefore, i provides a ferile area for research Daa and mehodology The daa used o invesigae he daily seasonal anomaly in he Vienamese sock marke is he daily reurns series of he marke index (VNINDEX) ha is derived from he daily marke index series as described in chaper 8. Descripive saisics on day-of-he-week reurns for he index are summarised in Table 9.3. To es for he presence of a day-of-he-week-effec on sock reurns and sock volailiy in he Vienamese sock marke, a se of regression models are employed in his sudy. The firs model, which is employed o examine he day-of-he-weekeffec on sock reurns, is he OLS (Ordinary Leas Square) regression wih he following form: 9

13 Equiisaion and Sock-Marke Developmen Table 9.3: Summary saisics on sock reurns by day of he week Monday Tuesday Wednesday Thursday Friday Observaions Mean b Median S.D. * * : Sandard deviaion b : Significan a he and 5% level using -es. R i = α D + α2d 2 + α3d 3 + α4d 4 + α5d 5 + ε N ( 0, h ) ε (9.) where R i is he log reurn of he marke index; D, D 2, D 3, D 4 and D 5 are dummy variables for Monday, Tuesday, Wednesday, Thursday, and Friday respecively (i.e., D = if observaion falls on a Monday and 0 oherwise); and ε is an error erm and assumed o be independenly and idenically disribued (iid). I is likely o be ha he assumpion of homocesdaiciy (he variance of he errors is consan over ime) is usually violaed in he conex of financial ime series. Moreover, according o Brooks (2002), if he assumpion is no saisfied and he OLS model is sill employed, he sandard errors could be wrong and hus any inferences drawn from he model could be misleading. To deal wih his issue, Engle (982) proposed he class of ARCH models (ARCH sands for auoregressive condiional heeroscedasiciy ) in which he variance of errors allows o evolve over ime as a funcion of pas errors. Then, Bollerslev (986) generalised he ARCH models as GARCH ha allows he condiional variance o be dependen upon earlier own lags. In his sudy, he simples form of GARCH [GARCH (,)] is employed. To examine he day-of-he-week effec on he marke reurns, he GARCH (,) akes he following form: R h D D D D i = α + α2 2 + α3 3 + α4 4 + α5 5 + ε ε N ( 0, h ) = δh γε D ω (9.2) If any significan coefficiens (α i ) are found in he simple OLS and GARCH (,) models, which are menioned above, he hypohesis of day-of-he-week-effec can be acceped. However, i is worh o noe here ha hese models ignore risk facors ha can be varied across he days of he week in explaining he seasonaliy in sock 92

14 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke reurns. To ake ino accoun risk facors while esing day-of-he-week-effec, he so-called marke model, which was empirically applied by Brooks and Persand (200), is also used in his sudy. Specifically, in he marke model, he marke risk of he VNINDEX is represened by he reurns on he World Price Index. The marke model under he OLS form can be expressed by he following equaion: R 5 5 i = i Di + i= i= α β D RMI + ε i i i ε N 0, h ) (9.3) ( where RMI i is he reurns on World Price Index ha are used as proxy for he marke risk of he VNINDEX, and all erminology is remained as for Equaion 9.. Furhermore, he marke model under GARCH is formulaed and esed by combining Equaion 9.3 (reurn equaion) wih Equaion 9.2 (variance equaion). Finally, o es for he presence of day-of-he-week-effec on sock volailiy, his sudy employs he GARCH (,) wih addiive dummy variables for each day of he week in he condiional variance equaion (hereafer i is called as volailiy model), which was used in sudies of Berumen and Kiymaz (200) and Kiymaz and Berumen (2003). To avoid he problem of collineariy in he regression model, only four ou of five days in he week are included in he variance equaion as he dummy variables. Specifically, he condiional variance Equaion 9.2 is modified as follows: h ω β β β β δ γε (9.4) = + 2 D D2 3D3 4D4 h where D, D 2, D 3 and D 4 are dummy variables for Monday, Tuesday, Thursday, and Friday respecively (Wednesday is no included in he Equaion 9.4). The volailiy model is conduced for wo cases: wihou and wih including marke risk by joinly esimaing Equaion 9. and 9.4, and 9.3 and 9.4 respecively. In shor, in order o invesigae he presence of seasonaliy in sock reurns and sock volailiy, his sudy employs a se of six models, including he simple OLS, GRACH (,), marke model wih OLS, marke model wih GARCH (,), volailiy model wihou marke risk, and volailiy model wih marke risk. Specificaions of hese models are summarised in Table Empirical resuls The resuls of day-of-he-week effec on reurns and volailiy in he Vienamese sock marke are presened in Table 9.5. The resuls of he OLS model (Model ) show ha he average reurn on Friday is significanly higher han oher days of he week. In oher words, he Friday effec is presence in he VNINDEX. The marke 93

15 Equiisaion and Sock-Marke Developmen model wih he OLS form (Model 3) confirms ha mean reurn of he INDEX is sill significan posiive a he five percen level on Friday. Moreover, i is observed ha all bea coefficiens in Model 3 are insignifican. On he basis of hese resuls, i can be concluded ha day-of-he-week effec (Friday effec) is presence in he sock reurns and ha average marke risk levels (proxied by World Price Index) are likely o be he same across he days of he week. Table 9.4: Specificaions of six employed models Model (OLS) Name Model 2 [GARCH (,)] R R i i Specificaions = D + α 2D2 + α 3D3 + α 4D4 + α5d5 α + ε = D + α 2D2 + α 3D3 + α 4D4 + α5d5 α + ε Model 3 (Marke model wih OLS) Model 4 [Marke model wih GARCH (,)] Model 5 (Volailiy model wihou marke risk) Model 6 (Volailiy model wih marke risk) h ω δ γε = h R R h 5 5 i = idi + i= i= α β D RMI + ε 5 5 i = idi + i= i= i α β D RMI + ε = ω δh γε R h i i = D + α 2D2 + α 3D3 + α 4D4 + α5d5 i i α + ε = ω βd β2d2 β3d3 β4d4 δh γε R h 5 5 i = idi + i= i= α β D RMI + ε i i = ω βd β2d2 β3d3 β4d4 δh γε i i i I is imporan o noe here ha he conclusion above is based on he OLS mehod, which ignores he ime-varying volailiy (ARCH effec) ha is suspeced o be presence in he observed series. If ARCH effec exiss in he marke reurns, he GARCH (,) model should be applied. To check for he presence of ARCH effec, he Lagrange Muliplier (LM) es, proposed by Engel (982), is conduced, using 5 lags 30. The resuls of ARCH-LM es srongly indicae ha ARCH effec is presence in he Model and Model 3 since he es saisics of he wo models are 30 We also perform several lag orders and he basic resuls remain he same. 94

16 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke and respecively while he LM-criical value is a he one percen level significan. Clearly, due o ARCH effecs in he series, GARCH (,), which akes ino accoun ime-varying variance, is more appropriae han he OLS mehod in esing for he daily seasonal volailiy in he marke reurns. Resuls of GARCH esimaes wihou and wih including risk facors are summarised in he second and fourh column. The findings of GARCH model wihou including risk facors (Model 2) reveal ha a negaive Tuesday effec exiss in he marke reurns, bu he posiive Friday effec in he firs model (OLS) disappears. Furhermore, resuls derived from he marke model wih GARCH (,) (Model 4) are consisen wih resuls of Model 2 ha he negaive Tuesday effec is presen in he VNINDEX reurns. These resuls combined wih insignifican beas for all days of he week in Model 4 confirm again ha he mean marke risk levels do no have any significan changes across he days of he week. Finally, o invesigae he day-of-he-week effec on sock volailiy, he GARCH (,), wih dummy variables for each day of he week in he condiional variance equaion are performed for wo cases, wihou and wih including he marke risk (Model 5 and Model 6 respecively). The las wo columns repors resuls of hese models. Wih respec o marke reurns, resuls of boh Model 5 and Model 6 consisenly indicae ha he esimaed coefficiens of he Tuesday and Thursday dummy variables are negaive and saisically significan a he five percen level. Such resuls are somewha differen o compared ones where he significanly Thursday effec is never observed. Reurning o he main objecive of he las wo models, he resuls for he condiional variance equaions srongly rejec he hypohesis of day-of-he-week effec on sock marke volailiy for he Vienamese sock marke. In summary, he day-of-he-week effec exiss in he VNINDEX reurn. Specifically, a negaive Tuesday effec is observed in he GARCH (,) mehod. Moreover, when he GARCH (,) wih dummy variables for each day of he week o be added in he condiional variance equaion are conduced, a negaive Tuesday and Thursday effec are presen in he marke reurns. However, no evidence is found o suppor he hypohesis of day-of-he-week effec on sock marke volailiy in he VNINDEX. 9.3 Tesing for he shor-erm overreacion hypohesis The sock marke overreacion hypohesis saes ha exreme movemens in sock reurns will be followed by exreme movemens in he opposie direcion (De Bond and Thaler, 985). If his hypohesis holds, invesors can earn abnormal reurns by simply using a conrarian sraegy. Therefore, empirical sudies of sock marke 95

17 Equiisaion and Sock-Marke Developmen Table 9.5: Day-of-he-week effec on he VNINDEX reurns and volailiy Model Model 2 Model 3 Model 4 Model 5 Model 6 Condiional mean equaion Monday (-.02) (-.388) (-0.984) (-.69) (-.647) (-.78) Tuesday (-.226) (-2.337) b (-.24) (-2.474) b (-2.042) b (-2.5) b Wednesday (0.779) (-0.805) (0.762) (-0.959) (-.69) (-.227) Thursday (.26) (-.878) (.23) (-.949) (-.975) b (-2.02) b Friday 0.08 (2.92) b (-.505) (2.03) b (-.600) (-.899) (-.870) Bea-Monday 0.0 (.266) (.5) (.006) Bea-Tuesday (0.405) (0.880) 0.08 (0.390) Bea-Wednesday 0.00 (0.003) (0.836) (0.667) Bea-Thursday (0.238) (-0.55) (-0.203) Bea-Friday (0.645) (0.762) (0.82) ARCH-LM ess (5 lags) Condiional variance equaion ω (4.73) a (4.895) a (0.579) (0.972) 2 ε (6.50) a (6.507) a (6.55) a (6.63) a h (6.393) a (6.204) a (7.44) a (6.933) a Monday 0.03 (.327) 0.00 (.03) Tuesday 0.08 (.52) 0.03 (0.945) Thursday 0.08 (.089) 0.06 (0.99) Friday (-0.003) (-0.09) Noes: a, b significan a he % and 5% level respecively, -values in parenheses. The Chi-square criical values a % and 5% are 5.09 and.07 respecively 96

18 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke overreacion provide imporan implicaions for boh academics and praciioners. The overreacion hypohesis has been esed boh from a long-erm and a shor-erm perspecive. Specifically, DeBond and Thaler (985, 987), Chopra e al. (992) find long-erm socks reurn reversals while Ochere and Chan (2003), Wang e al. (2004) and Ma e al. (2005) repor some evidence of shor-run overreacion. This secion ries o find empirical evidence of he shor-erm overreacion for he Vienamese sock marke by using weekly reurn daa of all socks lised on he marke from May 2002 o Augus Lieraure review The sock marke overreacion has been exensively sudied for he U.S. marke in he las decades, bu no for emerging counries (Anoniou and Galarriois, 2005). The firs empirical evidence o suppor he hypohesis of sock marke overreacion comes from De Bond and Thaler (985). Using monhly reurn daa for he New York Sock Exchange common socks during he period from January 926 o December 982, hey form wo porfolios, namely winner and loser, based on abnormal reurns of socks and monior hem for a period of hree years (racking period). As a resul, he porfolio of prior losers significanly ouperforms he porfolio of prior winners by 24.6 percen. According o De Bond and Thaler (985), he evidence implies ha he sock marke is no efficien in he weak form. In a follow-up sudy, De Bond and Thaler (987) also find sysemaic sock price reversals for he U.S. However, hey argue ha he sock price overreacion can no be aribued o size and risk measuremen effecs. Moreover, he sock marke overreacion for he U.S. is confirmed by Howe (986). Indeed, using weekly reurns daa obained from he CRSP for he period of , he repors ha socks wih good news (large posiive reurns) significanly underperform he marke during a 50-week period afer he even while socks wih bad news (large negaive reurns) significanly ouperform he marke during he 20-week period. Addiionally, he differences in cumulaive average reurn beween he socks wih bad news and sock wih good news are posiive for he whole racking period. In addiion, similar sudies conduced by Brown and Harlow (988), Chopra e al. (992) and Ma e al. (2005) provide srong evidence o suppor for he presence of overreacion in he U.S. sock marke. In anher sudy, Zarowin (990) reexamines he evidence of sock price overreacion as repored by De Bond and Thaler. Using a similar daa se ha De Bond and Thaler employ, he finds a significanly posiive difference in abnormal reurns beween he loser and winner porfolios for he U.S. sock marke. Conrary o he findings of De Bond and Thaler (987), he argues ha his resul is due o he size of losers o be smaller han winners, bu i does no resul from invesor 97

19 Equiisaion and Sock-Marke Developmen overreacion. In addiion, similar evidence is given by Clare and Thomas (995) who invesigae he sock marke overreacion for he U.K. by using monhly sock reurns daa over he period from 955 o 990. Lo and MacKinlay (990b) examine wheher conrarian profis are mainly due o sock marke overreacion by employing weekly reurns of 55 socks from he CRSP s daa over he period from July 962 o December 987. They find ha sock reurns are usually posiive cross-auocorrelaion indicaing ha a conrarian sraegy would be esablished in order o make abnormal reurns even if no sock overreacs o informaion. Specifically, he auhors poin ou ha he conribuion of sock price overreacion o profiabiliy of conrarian sraegies would be minor while he lead or lag relaion among sock reurns is he major source of conrarian profis. Similar o Lo and MacKinlay (990b), Jegadeesh and Timan (995) invesigae he overreacion, delayed reacion and conrarian profiable sraegy for he U.S. sock markes from 963 o 990. They repor ha sock prices overreac o firm-specific informaion, bu underreac o common facors. Conrary o findings of Lo and MacKinlay (990b), Jegadeesh and Timan (995) documen ha mos of profi obained from a conrarian sraegy is aribued o sock price overreacion while a very small porion of such profi is due o lead-lag relaionship among sock reurns. Conrary o mos empirical sudies menioned above, Davidson III and Duia (989), by using a sample of virually all socks lised on New York Sock Exchange (NYSE) and American Exchange (AMEX) from 963 o 985, repor evidence agains he hypohesis of sock price overreacion. Specifically, hey documen ha prior winners coninue o be winners and losers keep on losing for a leas one year. In oher word, he sock prices are delayed reacion o informaion. Furher, Bayas and Cakici (999) invesigae he overreacion hypohesis for seven developed sock markes (he U.S., Canadian, he U.K., Japanese, German, French and Ialian sock markes) by using sock reurn daa over he period beween 982 and 99. As a resul, hey find empirical evidence o suppor he hypohesis of overreacion for all markes, expec he U.S. In emerging sock markes, Da Cosa (994) invesigaes he overreacion for he Brazilian sock marke during a period from 970 o 989. Using boh he marke adjused and he CAPM adjused models, he repors ha he prior loser porfolio significanly ouperforms he marke by 7.63 percen while he prior winner one underperforms he marke by percen for he 24-monh period from he formaion of porfolios. In anher sudy, Bowman and Iverson (998) es for he presence of shor-run overreacion in he New Zealand sock marke by employing weekly reurn daa for he period from 967 o 986. The main findings of he sudy indicae ha he hypohesis of shor-run overreacion can no be rejeced for 98

20 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke he New Zealand sock marke. Specifically, he abnormal reurn of prior loser and winner socks in he week afer he porfolios formaion are 2.4 percen and -.5 percen respecively. In Asia, Ochere and Chan (2003) examine he shor-run overreacion for he Hong Kong sock marke by using he daily reurn daa over he period from March 996 o June 998. In general, he empirical evidence obained from his sudy indicaes ha overreacion is presen in he Hong Kong sock marke. Specifically, price reversals of winners and losers are more pronounced in he period of he prefinancial crisis in Asia han in he crisis period. However, afer accouning for ransacion coss he auhors find ha invesors can no earn abnormal reurns based on a conrarian rading sraegy. Furhermore, Wang e al. (2004) examine he shor-run overreacion effec for he Chinese sock marke by using weekly reurn daa of 30 individual socks for he period from Augus 994 o July They find significan evidence of he shor-run overreacion for he Chinese sock marke. Specifically, for he whole sample of 30, he prior loser porfolio significanly ouperforms he marke by 0.55 percen while he prior winner one significanly underperforms he marke by 0.52 percen in he consecuive week afer he porfolios formaion. In a recen sudy, Anoniou e al. (2005) invesigae he presence of conrarian profis and sources of such profis for he Ahens Sock Exchange (ASE) by employing weekly price daa for all socks lised on he ASE over he period from January 990 o Augus Resuls of his sudy are similar o ha of Jegadeesh and Timan (995) on he U.S. sock marke. Specifically, he auhors documen presence of conrarian profis in he ASE for boh cases: wihou and wih risk and marke fricions adjusmen. Furhermore, hey repor ha he conribuion of sock price overreacion o firm specific informaion o such profis is larger han he delayed reacion o he common facors. In summary, sock marke overreacion is deeced in many markes, including developed and emerging ones. Moreover, some evidence of he delayed reacion in sock prices is found for he U.S. marke. On he basis of his survey, i is expeced ha he sock price overreacion or underreacion could be presen in he Vienamese sock marke, which is proved o be inefficien in he weak form Daa and mehodology Daa The daa used in his secion comprises he weekly coninuously compounded reurns, which are derived from he weekly sock price observaions as described in chaper 8, for all socks lised on he Ho Chi Minh Sock Exchange during he 99

21 Equiisaion and Sock-Marke Developmen period from May 2 nd, 2002 o Augus 24 h, The number of socks lised on he sock marke over he ime is shown in Table 9.6. Table 9.6: Number of socks lised on he marke over he ime Time May. 2, 2002 Dec. 25, 2002 Dec. 3, 2003 Dec. 29, 2004 Number of socks Mehodology To deermine wheher he shor-run overreacion is presen in he Vienamese sock marke, his sudy employs he mehod which is used by Wang e al. (2004). Following his mehod, firs he abnormal reurns for each sock are calculaed by using he marke adjused model as follows: AR i, = Ri, Rm, (9.5) where AR, is he abnormal reurn on sock i for week, i R, is he acual reurn on sock i for week and R m, is he reurn on he marke index for week. The socks are hen ranked in descending order on he basis of AR i,, and winner and loser porfolios are formed. Due o limiaion of he number of socks raded on he marke, only he op seven socks are grouped o he winner porfolio, and he boom seven socks are assigned o he loser porfolio. Nex, he winner and loser porfolios are moniored over he nex 2 weeks. The mean abnormal reurns for each week following he formaion of he porfolios are compued for boh he winner and loser porfolios by using he following equaion: 7 AR p, = ARi, (9.6) 7 i= where AR p, is he mean abnormal reurn for each porfolio (p = W for he winner and p = L for he loser porfolio) a week. Subsequenly, he average cumulaive abnormal reurns (ACAR) are calculaed for each es period (racking period) as follows: i 200

22 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke ACAR p, = n n = AR p, (9.7) where ACAR p, is he average cumulaive abnormal reurns for each porfolio (p = W for he winner and p = L for he loser porfolio) a observed week and n is he racking period (n = 2,3, 4, 8 and 2). Finally, ess of he overreacion hypohesis are based on he difference of average cumulaive abnormal reurns beween he winner and loser porfolio which is given as follows: ACAR D, ACARL, ACARW, = (9.8) If ACAR D, is insignificanly differen from zero, he null hypohesis of overreacion is rejeced. However, a significan posiive or negaive value of ACAR, implies ha overreacion or underreacion respecively exiss in he sock marke. D Empirical resuls Empirical resuls of he overreacion ess are presened in Table 9.7 and Table 9.8. Specifically, Table 9.7 repors differences in he mean abnormal reurns beween winner and loser porfolios for each week following he formaion of he porfolios while he differences in mean cumulaive abnormal reurns for each racking period beween hese porfolios are summarised in Table 9.8. I can be readily observed in Table 9.7 ha he winner porfolio ouperforms he marke by.28 percen while he loser porfolio underperforms he marke by.44 percen for he week when he porfolios are formed. Especially, he empirical resuls sugges ha he overreacion hypohesis can no be acceped for all single-weeks following he formaion of he porfolios. However, i is found ha he differences in he mean abnormal reurns beween winner and loser porfolios are likely o be negaive, indicaing ha he sock prices are delayed reacion. For insance, he winner socks coninue o ouperform he marke by 0. percen, and he loser socks underperform he marke by 0.36 percen for he week T + 5. The resulan reurn of percen on he difference beween winner and loser porfolios is marginally significan (pvalue equal o 6 percen). Furher, a comparison of mean cumulaive abnormal reurns beween he winner and loser porfolios, presened in Table 9.8, reveals ha losers end o coninue o be losers for all es periods (n = 2, 3, 4, 8, and 2). In oher word, he differences in mean cumulaive abnormal reurns beween he loser and winner porfolios 20

23 Equiisaion and Sock-Marke Developmen (ACAR D ) are negaive, bu all of hem are saisically insignifican difference from zero. The findings indicae ha he hypohesis of overreacion is srongly rejeced for he Vienamese sock marke. In conrary, sock prices seem o be delayed reacion. Table 9.7: Differences in he mean abnormal reurns beween winner and loser porfolios following he formaion of he porfolios Week Winner Loser Loser - winner AR AR AR p-value F T T T T T T T T T T T T Noe: F is he formaion (observaion) week; p-value is based on one-sample es of he null hypohesis ha he differences in he mean abnormal reurns beween winner and loser porfolios are zero. In summary, based on he findings derived from he ess of he differences in abnormal reurns beween he winner and loser porfolios, i can be concluded ha he overreacion effec is no presen in he Vienamese sock marke. However, i should be noed here ha he observed period of he sample may be oo shor o correcly idenify overreacion. Therefore, furher research which is based on longer observaion periods is needed o come o an unambiguous conclusion regarding possible overreacion effecs on he sock marke in Vienam. Concerning anoher aspec of he issue, o wi he phenomenon of rending in he sense ha sock prices end o move in he same direcion for some periods, also known as he momenum effec (Jegadeesh and Timan, 993; Chan e al., 996; Rouwenhors, 202

24 Chaper 9: Tesing Anomalies in Sock Reurns for he Vienamese Sock-Marke 998), he findings of he sudy are likely o suppor he hypohesis ha such an effec is presen in he Vienamese sock marke. Table 9.8: The difference in mean cumulaive abnormal reurns beween he winner and loser porfolios Week ACAR L ACAR W ACAR D p-value T T T T T Noe: p-value is based on one-sample es of he null hypohesis ha he difference in he mean cumulaive abnormal reurns beween winner and loser porfolios is zero 9.4. Conclusions This chaper is devoed o furher invesigaing some special issues regarding he EMH for he Vienamese sock marke. Firs, he day-of-he-week effec is examined by using a se of regression models. Then, he Chaper deals wih he sock marke overreacion ha has been widely documened in he financial lieraure, especially for he U.S. marke. The empirical resuls derived from he regression models generally indicae ha he day-of-he-week effec is presen in he Vienamese sock marke. Specifically, he negaive Tuesday effec on marke reurns are found when he GARCH (,) model is employed. Furhermore, he empirical evidence obained from he GARCH (,) wih day-of-he week dummy variables o be added in he condiional variance equaion documens ha a negaive effec is observed for Tuesday and Thursday. However, he empirical findings fail o suppor he hypohesis of day-of-he-week effec on sock marke volailiy for he Vienamese sock marke. Moreover, he ess of he differences in abnormal reurns beween he winner and loser porfolios reveal ha he shor-run overreacion does no exis in he Vienamese sock marke. However, i is observed ha he sock prices are likely o be delayed reacion o informaion. However, he limiaion of his sudy regarding he issue is ha he sudies period is oo shor (abou hree years), and he sample of observed socks are no large. 203

25