Does Firm Characteristics Affect Foreign Investors’ Transactions? The Evidence from the Vietnam Stock Market
Main Article Content
Abstract
This paper aims to examine if firm characteristics had an impact on foreign investors’ decisions on buying and selling Vietnamese listed firms’ stocks between 2015 and 2019. Despite the vast majority of research in the same fields worldwide, answers to this question were not clear. Employing panel data estimation of 222 non-financial firms in the Vietnam stock market, the result of this study indicates that foreign investors have a strong preference for firms with high market capitalization, liquidity, and profitability, whereas they seem to be reluctant to invest in ones with high leverage and price to book values. However, we fail to find clear evidence of the impact of dividend yield on the number of shares bought or sold by foreign investors. Based on these results, this study proposes important policy implications to attract foreign investment in the stock market in Vietnam.
Keywords:
Firm’s characteristics, trading decision, foreign investor, Vietnam stock market.
References
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[44]
[2] W. Pech, M. Milan, “Behavioral economics and the economics of Keynes,” The Journal of Socio-Economics, 38 (6) (2009) 891-902.
[3] M.T.I. Khan, S.H. Tan, & L.L. Chong, “The effects of stated preferences for firm characteristics, optimism and overconfidence on trading activities,” International Journal of Bank Marketing 34 (7) (2016) 1114-1130. https://doi.org/10.1108/IJBM-10-2015-0154.
[4] E.F. Fama, “Efficient capital markets: II,” The Journal of Finance, 46 (5) (1991) 1575-1617.
[5] E.F. Fama & K.R. French, “Size and book‐to‐market factors in earnings and returns,” The Journal of Finance, 50 (1) (1995) 131-155.
[6] M. Statman, “Investor Sentiment, Stock Characteristics, and Returns,” The Journal of Portfolio Management, 37 (3) (2011) 54-61. https://doi.org/10.3905/jpm.2011.37.3.054.
[7] E.G. Falkenstein, “Preferences for stock characteristics as revealed by mutual fund portfolio holdings,” The Journal of Finance, 51 (1) (1996) 111-135..
[8] J.K. Kang & R.M. Stulz, “Is bank-centered corporate governance worth it? A cross-sectional analysis of the performance of Japanese firms during the asset price deflation,” NBER Working Paper No. w6238 (1997).
[9] G. Huberman, “Familiarity breeds investment,” The Review of Financial Studies, 14 (3) (2001) 659-680. https://doi.org/10.1093/rfs/14.3.659.
[10] O. Gloede & L. Menkhoff, “Financial professionals’ overconfidence: Is it experience, function, or attitude?,” European Financial Management, 20 (2) (2014) 236-269. https://doi.org/10.1111/j.1468-036X.2011.00636.x.
[11] V. Covrig, S.T. Lau & L.Ng., “Do domestic and foreign fund managers have similar preferences for stock characteristics? A cross-country analysis,” Journal of International Business Studies, 37 (3) (2006) 407-429. https://doi.org/10.1057/palgrave.jibs.8400195.
[12] M. Dahlquist & G. Robertsson, “Direct foreign ownership, institutional investors, and firm characteristics,” Journal of Financial Economics, 59 (3) (2001) 413-440. https://doi.org/10.1016/S0304-405X(00)00092-1.
[13] R. Aggarwal, L. Klapper & P.D. Wysocki, “Portfolio preferences of foreign institutional investors,” Journal of Banking & Finance, 29 (12) (2005) 2919-2946. https://doi.org/10.1016/j.jbankfin.2004.09.008.
[14] S.J. Camilleri & F. Galea, “The determinants of securities trading activity: Evidence from four European equity markets,” Journal of Capital Markets Studies, 3 (1) (2019) 47-67. https://doi.org/10.1108/JCMS-02-2019-0007.
[15] X.V. Vo, “Foreign ownership in Vietnam stock markets-an empirical analysis,” 2010. Available at SSRN 1774937 (2011).
[16] J.A. Batten & X.V. Vo, “Foreign ownership in emerging stock markets,” Journal of Multinational Financial Management, 32 (2015) 15-24. https://doi.org/10.1016/j.mulfin.2015.05.001.
[17] S.C. Bae, J.H. Min & S. Jung, “Trading behavior, performance, and stock preference of foreigners, local institutions, and individual investors: Evidence from the Korean stock market,” Asia‐Pacific Journal of Financial Studies, 40 (2) (2011) 199-239. https://doi.org/10.1111/j.2041-6156.2011.01037.x.
[18] L. Zou, T. Tang & X. Li, “The stock preferences of domestic versus foreign investors: Evidence from Qualified Foreign Institutional Investors (QFIIs) in China,” Journal of Multinational Financial Management, 37 (2016) 12-28. https://doi.org/10.1016/j.mulfin.2016.11.002.
[19] S.G. Deb, “Institutional investors and firm characteristics: New evidence from India,” Research in International Business and Finance, 46 (2018) 30-42. https://doi.org/10.1016/j.ribaf.2017.09.005.
[20] A.W. Lo & W. Jiang, “Trading volume: Definitions, data analysis, and implications of portfolio theory,” The Review of Financial Studies, 13 (2) (2000) 257-300. https://doi.org/10.1093/rfs/13.2.257.
[21] P.A. Gompers & M. Andrew, “Institutional investors and equity prices,” The Quarterly Journal of Economics, 116 (1) (2001) 229-259. https://doi.org/10.1162/003355301556392.
[22] Merton, R., “A Simple Model of Capital Market Equilibrium with Incomplete Information,” Journal of Finance, 42 (3) (1987) 483-510.
[23] H.C. Kang, D.W. Lee, & K.S. Park, “Does the difference in valuation between domestic and foreign investors help explain their distinct holdings of domestic stocks?,” Journal of Banking & Finance, 34 (12) (2010) 2886-2896. https://doi.org/10.1016/j.jbankfin.2009.11.020.
[24] K.L. Alnaif, “Stock liquidity determination evidence from Amman Stock Exchange,” Asian Economic and Financial Review, 4 (12) (2014) 1894-1905.
[25] C. Collver, “A characterization of market quality for small capitalization US equities,” SEC White Paper, 2014. Retrieved from https://www.sec.gov/marketstructure/research/small_cap_liquidity.pdf.
[26] M. Halling, M. Pagano, O. Randl & J. Zechner, “Where is the market? Evidence from cross-listings in the United States,” The Review of Financial Studies 21 (2) (2008) 725-761. https://doi.org/10.1093/rfs/hhm066.
[27] A.V. Mishra, R.A. Ratti, “Governance, monitoring and foreign investment in Chinese companies,” Emerging Markets Review 12 (2) (2011) 171-188. https://doi.org/10.1016/j.ememar.2011.02.005.
[28] P.A. Tkac, “A trading volume benchmark: Theory and evidence,” Journal of Financial and Quantitative Analysis 34 (1) (1999) 89-114. https://doi.org/10.2307/2676247.
[29] D. Yang, T. Ma, Y. Wang & G. Wang, “Does investor attention affect stock trading and returns? Evidence from publicly listed firms in China,” Journal of Behavioral Finance, 22 (4) (2021) 368-381. https://doi.org/10.1080/15427560.2020.1785469.
[30] X.V. Vo, “Foreign investors and stock price crash risk: Evidence from Vietnam,” International Review of Finance, 20 (4) (2020) 993-1004. https://doi.org/10.1111/irfi.12248.
[31] F.E. Fama, K.R. French, “A five-factor asset pricing model,” Journal of Financial Economics, 116 (1) (2015) 1-22. https://doi.org/10.1016/j.jfineco.2014.10.010.
[32] F.E. Fama, K.R. French, “The cross‐section of expected stock returns,” Journal of Finance, 47 (2) (1992), 427-465. https://doi.org/10.1111/j.1540-6261.1992.tb04398.x.
[33] K. Ko, K. Kim & SH. Cho, “Characteristics and performance of institutional and foreign investors in Japanese and Korean stock markets,” Journal of the Japanese and International Economies, 21 (2) (2007), 195-213. https://doi.org/10.1016/j.jjie.2005.11.002.
[34] X.V. Vo, “Foreign ownership and stock return volatility - Evidence from Vietnam,” Journal of Multinational Financial Management, 30 (2015) 101-109. https://doi.org/10.1016/j.mulfin.2015.03.004.
[35] I. Azzam, F. Jasmin & D.K. Ghosh, “Foreign ownership and financial performance: Evidence from Egypt,” International Journal of Business, 18 (3) (2013) 232-254.
[36] J.Q. Jeon, C. Lee & C.M. Moffett, “Effects of foreign ownership on payout policy: Evidence from the Korean market,” Journal of Financial Markets, 14 (2) (2011) 344-375. https://doi.org/10.1016/j.finmar.2010.08.001.
[37] J.K. Kang, “Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan,” Journal of Financial Economics 46 (1) (1997) 3-28. https://doi.org/10.1016/S0304-405X(97)00023-8.
[38] C.H. Lin, C.Y. Shiu, “Foreign ownership in the Taiwan stock market - An empirical analysis,” Journal of Multinational Financial Management, 13 (1) (2003) 19-41. https://doi.org/10.1016/S1042-444X(02)00021-X.
[39] E.F. Fama, K.R. French, “Dividend yields and expected stock returns,” Journal of Financial Economics, 22 (1) (1988) 3-25. https://doi.org/10.1016/0304-405X(88)90020-7.
[40] J.Y. Campbell, R.J. Shiller, “Stock prices, earnings, and expected dividends,” Journal of Finance 43 (3) (1988) 661-676. https://doi.org/10.2307/2328190.
[41] C.R. Harvey, “Predictable risk and returns in emerging markets,” The Review of Financial Studies 8 (3) (1995) 773-816.
[42] X.V. Vo, “Foreign investors and corporate risk taking behavior in an emerging market,” Finance Research Letters, 18 (2016) 273-277. https://doi:10.1016/j.frl.2016.04.027.
[43] R.La. Porta, F. Lopez-de-Silanes, A. Shleifer & R. Vishny, “Investor protection and corporate governance,” Journal of Financial Economics, 58 (1-2) (2000) 3-27. https://doi.org/10.1016/S0304-405X(00)00065-9.
[44] C. Leuz, K.V. Lins & F.E. Warnock, “Do foreigners invest less in poorly governed firms?,” The Review of Financial Studies, 22 (8) (2009) 3245-3285. https://www.jstor.org/stable/40604780.
[44]