FINANCE DISSERTATION ON Testing the Weak- Form Market Efficiency Hypothesis for Vietnam Stock Market From 2013 to 2017

Testing the Weak- Form Market Efficiency Hypothesis for Vietnam Stock Market from 2013 to 2017 Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance UWE Bristol FINANCE DISSERTATION ON Testing the Weak- Form Market Efficiency Hypothesis for Vietnam Stock Market From 2013 to 2017 NAME OF STUDENT: Ngo Thi Minh Hoa ID No: 17047718 Intake Supervisor: Dr Tran Manh Ha 2018 Ngo Thi Minh Hoa_MSc in Finance | University of the West of England Testing the Weak- Form Market Efficiency Hypothesis for Vietnam Stock Market from 2013 to 2017 Executive Summary This thesis examines the effectiveness of the Vietnam Stock Exchange Daily observations are used in the period from 2013 to 2017 for the VN Index This study uses the statistical method described: unit testing, variance testing, autocorrelation test, run test of market log return to examine the effectiveness of information in the market of Vietnam stock market The results show that daily data of the VN index showed signs of failure to follow the theory of random walk The study concludes that Vietnam's stock market is not Weak- Form Market Efficiency This finding is consistent with previous studies on weak form efficiency in Vietnam Ngo Thi Minh Hoa_MSc in Finance | Testing the Weak- Form Market Efficiency Hypothesis for Vietnam Stock Market from 2013 to 2017 Table of Contents Executive Summary 2 Introduction 1.1 Purpose and contributionof research 1.2 Limitation of the study Efficient Market HypothesisTheory 2.1 Weak form efficiency .5 2.2 Semi-strong form efficiency 2.3 Strong form efficiency 2.4 Testing models for EHM 2.4.1 The Fair Game Model 2.4.2 The Submartingale Model 2.4.3 The Random Walk Model 2.5 Vietnam Securities Market Overview Literature review Data 13 Methodologies for Weak Form market Efficiency Testing 15 5.1 Unit root test 15 5.2 Variance testing 16 5.3 Autocorrelation testing 17 5.4 Runs test 19 Test results analysis .21 6.1 Unit root test .21 6.2 Variance test 22 6.3 Autocorrelation test 23 6.4 Runs test 26 Autocorrelation test (LBQ test) 25 Conclusion 27 Reference 29 Web references: 32 Appendix B: DissertationSupervision Meeting Log 34 Ngo Thi Minh Hoa_MSc in Finance | Testing the Weak- Form Market Efficiency Hypothesis for Vietnam Stock Market from 2013 to 2017 Introduction 1.1 Purpose and contribution of research The purpose of this dissertation was to test the weak market efficiency hypothesis for the Vietnam Stock Exchange Topics include the following objectives based on the market theory of statistical validation methods in order to hypothesize that the stock market in Vietnam has a weak of information efficiency From this topic will have a broader view of the stock market in Vietnam, concluded information on Vietnam’s stock market effectively or not, thus offering solutions to the stock market Vietnam is growing 1.2 Limitation of the study Although I have tried a lot, I still have some limitations as follows The thesis only stops at the weak market test and does not carry out effective semi-strong form and strong form Thesis focuses on researching data for the whole VN index, not for individual stocks Efficient Market Hypothesis Theory Efficient Market Hypothesis (EMH) theory has important implications in practice as well as in the theory of the financial sector Economist Samuelson (1965) has said that financial economics is considered the king's jewelry on the occasion of the ritual The market theory effectively would account for half of the jewelry EMH was first introduced in 1900 by Louis Bachelier in his doctoral thesis entitled "The Theory of Speculation" and since then it has continued to improve Among the authors of the EMH doctrine are Kendall (1953) and Paul Samuelson (1965) Economists later found evidence related to EMH and by 1960 the random walk theory (a hypothesis about the relationship between past and future prices of goods - or In the 1960s, the theory of random walk continued to expand to EMH with the emergence of the EMH semi-strong form and strong form Ngo Thi Minh Hoa_MSc in Finance | Testing the Weak- Form Market Efficiency Hypothesis for Vietnam Stock Market from 2013 to 2017 Efficient market hypothesis was proposed by American scientist F Fama in 1970 Fama argues that stock prices reflect the information contained in it: weak form efficiency, semi-strong form and strong form 2.1 Weakform efficiency In the first form, a low-performing market is defined as a stock price that adequately reflects the weak information of a stock (historical information), including historical prices, volume In this weak form efficient market, the current price reflects all past earnings and all information about that stock in the market Therefore, this hypothesis means that the yields of securities, as well as other information, are not correlated In other words, investors cannot look for unusual returns with their similar information in the past This type of efficient market is often found in developing countries or emerging markets 2.2 Semi-strong form efficiency Market theory is effective at the semi-strong form, assuming stock prices reflect both past and existing public information Public information available on the market is stock price, profitability, trading volume Stock prices will adjust immediately after the information is published When market performance is at a semi-strong level, there are no predictable price changes This means that investors who make a decision based on new information will not receive any unusual profits because the current price reflects all of that publicity This type of market usually develops in developed countries around the world 2.3 Strong form efficiency The final form of the market is strong form In this market, the price of securities reflects all information relevant to it, including past and present, from the public to internal, even personal information is also reflected The strong form efficient market theory is the synthesis of both types of effective markets which are weak and semistrong forms In an efficient market for information at the level of strong form, the information provided to investors is the same, they cost the same to obtain that information and bear the same risk No investor has the right to access valuationrelated information or use it to make super-profits for themselves, because the market Ngo Thi Minh Hoa_MSc in Finance | Testing the Weak- Form Market Efficiency Hypothesis for Vietnam Stock Market from 2013 to 2017 reflects the information to investors very quickly, from the information Public information to internal information Therefore, the effective market in strong form requires the market to collect all the information 2.4 Testing models for EHM EMH is an important financial theory in the foundation of modern financial theory Fama has identified three test models for EMH: - The Fair Game Model - The Sub martingale Model - The Random Walk Model 2.4.1 The Fair Game Model The EMH theory is derived from The Fair Game theory, so The Fair Game Model is also used to test EMH in the stock market The coin toss can also be considered as the simplest example of this theory because the probability of the face and the back of the coin is the same More specifically, The Fair Game is a game in which there is no systematic difference between the actual results and the expected results before the game takes place Similarly, the stock market will be a fair game if there is no systematic discrepancy between the actual and expected returns of the stock In mathematics, it is written by the form below: Pιι t+1 : Actual observation of stock at time t + £■ (piʃ ) : The expected price of stock i at time t + 1, in terms of market information +1 aggregation is xi' t+1: The difference between the actual price and the expected price of the stock If the efficient market according to The Fair Game Theory, there is no difference between the actual stock price and the expected stock price: E ( ⅛τ) [P' +1^^ ( x =E t P +1 ⅛ )I = On the other hand, if the market is efficient, the income of the stock will be similar to the stock price in the following equation: Ngo Thi Minh Hoa_MSc in Finance | Testing the Weak- Form Market Efficiency Hypothesis for Vietnam Stock Market from 2013 to 2017