(Luận văn) whether momentum or contrarian phenomenon exist in vietnam stock market

t to MINISTRY OF EDUCATION AND TRAINING ng UNIVERSITY OF ECONOMICS HO CHI MINH CITY hi ep -o0o - w n lo ad ju y th yi pl n ua al TA THU TIN n va ll fu WHETHER MOMENTUM OR m oi CONTRARIAN PHENOMENON EXIST IN nh at VIETNAM STOCK MARKET z z MAJOR CODE: 60.31.12 k jm ht vb MAJOR: FINANCE – BANKING om l.c gm MASTER THESIS an Lu n va ADVISOR: Ph.D TRAN PHUONG NGOC THAO ey t re th HO CHI MINH CITY, 2011 t to ACKNOWLEDGEMENT ng hi ep At first, I would like to express my deep gratitude to my instructor, Dr Tran Phuong w n Ngoc Thao for her intensive guidance and valuable suggestions during time of my study lo ad y th I would like to thank Dr Vo Xuan Vinh for valuable comments and suggestions he share ju with me In addition, I also give my appreciation to all of my lecturers at Faculty of yi Banking and Finance, University of Economics Hochiminh City for their teaching and pl n ua al knowledge during my master course va My sincere thank goes to Nguyen Hiep Phat, my colleague at Au Viet Securities, he spent n a lot of time to help me make a software program to process raw data in this thesis ll fu m oi Finally, I am thankful to my family for giving me facilitation to complete my thesis at nh z z k jm ht vb om l.c gm an Lu n va ey t re th i t to ABSTRACT ng hi ep This thesis investigates whether momentum or contrarian phenomenon exist on w Vietnamese Stock Market over the period from January 2005 to June 2011 We employ n lo the famous methodology by Jegadeesh and Titman (1993) to calculate the profit of ad momentum and contrarian strategies which were built base on the historical return of 424 y th stocks listed on Ho Chi Minh Stock Exchange and Ha Noi Stock Exchange ju yi pl We found that all 16 trading contrarian strategies always make abnormal profit with al ua statistical significance at the level of 10% The most profitable contrarian strategy with n portfolio based on month formation and month holding has a average monthly return va n of 2,829% (equivalent to annually return of 33,95%) with significance level of 2% ll fu oi m Our research demonstrates that the abnormal profit on trading contrarian strategy can not nh be accounted for by beta-risk as well as market size But we found a evidence of P/B ratio at explaining contrarian phenomenon on Vietnamese Stock Market z z k jm ht vb Key words: Momentum; Contrarian strategies om l.c gm an Lu n va ey t re th ii t to TABLE OF CONTENTS ng ACKNOWLEDGEMENT……………………………………………………………… i hi ep ABSTRACT…………………………………………………………………………… ii TABLE OF CONTENTS……………………………………………………………… iii w LIST OF FIGURES…………………………………………………………………… vi n lo LIST OF TABLES…………………………………………………………………… vii ad ABBREVIATIONS…………………………………………………………………… viii y th ju Introduction………………………………………………………………………… yi 1.1 Overview of Momentum and Contrarian strategies…………………………… pl 1.2 Research Objective……………………………………………………………… al n ua 1.3 Research Methodology and Scope……………………………………………… va 1.4 Thesis Structure………………………………………………………………… n 1.5 Vietnamese Stock Market……………………………………………………… fu ll Literature Review………………………………………………………………… m oi 2.1 Efficient Market Hypothesis…………………………………………………… at nh 2.2 Momentum Strategy…………………………………………………………… 2.3 Contrarian Strategy…………………………………………………………… 15 z z Data Collection and Research Method………………………………………… 18 vb ht 3.1 Data Collection………………………………………………………………… 18 k jm 3.1.1 Stock Prices…………………………………….……………………… 18 gm 3.1.2 Adjusted Stock Prices………………………………………………… 19 l.c 3.1.3 P/B ratio………………………………………………………………… 21 3.1.4 Market Capitalization…………………………………………………… 22 om 3.2 Research Method……………………………………………………………… 22 an Lu Empirical Result…………………………………………………………………… 24 4.2 Empirical Result……………………………………………………………… 28 4.4.1 Market Risk…………………………………………………………… 36 iii th Market………………………………………………………………………… 35 ey 4.4 Some factors may account for the contrarian phenomenon in Vietnam Stock t re 4.3 Why does the contrarian phenomenon exist in Vietnam stock market? 32 n va 4.1 Raw Data Processing………………………………………………………… 24 t to 4.4.2 Firm Size……………………………………………………………… 39 ng 4.4.3 Price to Book…………………………………………………………… 40 hi ep Conclusion………………………………………………………………………… 42 5.1 Main findings………………………………………………………………… 42 w 5.2 Implications of Research……………………………………………………… 43 n lo 5.3 Limitations of Research……………………………………………………… 44 ad ju y th REFERCENCES……………………………………………………………………… 45 yi APPENDIX…………………………………………………………………………… 48 pl ua al Table A1: List of 424 investigated stocks……………………………………………………48 n Table B1-Table B16: The average monthly return of Winner and Loser va n Portfolios in 16 strategies…………………………………………………………………… 59 fu ll Table C1-Table C16: The average monthly return of Loser portfolio oi m compare to the one of Winner portfolio in 16 strategies………………………………… 75 nh at Table D11: Estimation of Beta of Winner portfolio in J=3/K=3 strategy……………… 83 z z Table D12: Estimation of Beta of Loser portfolio in J=3/K=3 strategy……………… 84 vb jm ht Table D21: Estimation of Beta of Winner portfolio in J=6/K=3 strategy……………… 85 k Table D22: Estimation of Beta of Loser portfolio in J=6/K=3 strategy……….……… 86 gm Table D31: Estimation of Beta of Winner portfolio in J=9/K=3 strategy……………….87 l.c Table D32: Estimation of Beta of Loser portfolio in J=9/K=3 strategy…………………88 om an Lu Table D41: Estimation of Beta of Winner portfolio in J=12/K=3 strategy…………… 89 Table D42: Estimation of Beta of Loser portfolio in J=12/K=3 strategy……………….90 ey th iv t re Table E2: Average Market Capitalisation of Loser portfolio compare to Market Capitalisation of Winner portfolio in J=6/K=3 strategy………………………………… 91 n va Table E1: Average Market Capitalisation of Loser portfolio compare to Market Capitalisation of Winner portfolio in J=3/K=3 strategy………………………………… 91 t to Table E3: Average Market Capitalisation of Loser portfolio compare to Market Capitalisation of Winner portfolio in J=9/K=3 strategy………………………………… 92 ng hi ep Table E4: Average Market Capitalisation of Loser portfolio compare to Market Capitalisation of Winner portfolio in J=12/K=3 strategy……………………………… 92 w n Table F1: The average P/B ratio of Loser portfolio compare to the average P/B ratio of Winner portfolio in J=3/K=3 strategy……………………… 93 lo ad ju y th Table F2: The average P/B ratio of Loser portfolio compare to the average P/B ratio of Winner portfolio in J=6/K=3 strategy……………………… 93 yi pl Table F3: The average P/B ratio of Loser portfolio compare to the average P/B ratio of Winner portfolio in J=9/K=3 strategy……………………….94 ua al n Table F4: The average P/B ratio of Loser portfolio compare to the average P/B ratio of Winner portfolio in J=12/K=3 strategy…………………… 94 n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re th v t to LIST OF FIGURES ng hi Figure 1.1 VN-Index Chart over the period from July 2000 to September 2011………….6 ep Figure 3.1 Formation and Holding periods in two strategies…………………………… 23 Figure 4.1 The screen of the Analyzing Stock Price Data program w n after importing data from Excel file…………………………………………………………….25 lo ad Figure 4.2 The screen of the Analyzing Stock Price Data after stocks are y th ranked in descending order on the basis of their average monthly returns…………… 26 ju Figure 4.3: The screen of Stock Grouping program shows the Winner yi pl and Loser portfolios, and their average returns…………………………………………… 27 n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re th vi t to LIST OF TABLES ng hi Table 3.1 Adjusting price of KDC share………………………………………………….… 20 ep Table 3.2 Adjusting price of OPC share………………………………………………….… 21 w n Table 4.1 The average return of Winner and Loser Portfolios and their difference in J=3/K=3 Strategy (Formation Period: months; Holding Period: months)…… ……28 lo ad ju y th Table 4.2 Summary of the average monthly return of loser and winner portfolio; and their differences (profitability of contrarian strategies) for 16 strategies over the period from 01/2005 to 06/2011……………………………………………….… 30 Table 4.3 Monthly and annually profitability of 16 contrarian strategies are ranking in descending and their significances……………………………………… 31 yi pl n ua al n va Table 4.4 Beta coefficient after perform regression……………………………………… 38 ll fu Table 4.5 The comparison in average market capitalization between oi m loser and winner portfolios and their differences……………………………………… .39 at nh Table 4.6 The comparison in average P/B ratio between loser and winner portfolios…41 z z k jm ht vb om l.c gm an Lu n va ey t re th vii t to ABBREVIATIONS ng hi Capital Asset Pricing Model EMH Efficient Market Hypothesis ep CAPM w n Ho Chi Minh City Stock Exchange HOSE lo ad ju VND Ha Noi Stock Exchange y th HNX yi Vietnam Dong pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re th viii t to CHAPTER 1: INTRODUCTION ng hi ep 1.1 Overview of Momentum and Contrarian Strategies In 1970, Efficient Market Hypothesis (EMH) developed by Professor Eugene Fama w proclaimed that in the efficient market no one could consistently beat the market and n lo stock prices follow a random walk Thus, future prices of stocks could not be predicted ad from their past prices, it means that the abnormal return from trading should be zero y th However, a lot of investors and researchers have doubts about the efficient market ju yi hypothesis both empirically and theoretically They always try to find some abnormal pl returns to prove the inefficiency of the markets ua al n Consequently, forecasting the price movements in stock markets has become a major va n challenge for investors, brokers and speculators Studying the movement of stock prices fu ll become one of the most attractive fields of research due to its commercial applications m oi and benefits it offers Recently, there are many researchers and traders have studied nh stock price predictions such as Fundamental Analysis, Technical Analysis, CANSLIM, at etc… z z vb And one of the most attractive trading strategies is momentum (and contrarian) strategy ht jm The momentum strategy appeared firstly in the 1960s However, it became widely known k only in the early 1990s after Narasimham Narasimhan Jegadeesh and Sheridan Titman gm l.c published their study Momentum and contrarian strategies are two opposite investment strategies which use historical price/return data in order to forecast the future om development of stock performance to make excess returns Momentum investing strategy, an Lu also sometimes known as “Trend following”, believes that stocks which have good performance in the past will keep doing so in the future, it buys (go long) stocks that have th winning stocks and buying past losing stock The contrarian strategy was introduced first ey good historical performance will be bad in the future, so it suggests short selling past t re over the same period In contrast, a contrarian strategy believes that stocks which have n va outperformed in the recent past, and short sell (go short) those that have underperformed