INTRODUCTION
A developing economy is closely linked to the growth of capital markets, with the securities market serving a crucial role as a primary avenue for capital raising This dynamic fosters the expansion of capital markets, as evidenced by advanced economies such as the United States, the United Kingdom, and Japan.
In the securities market, listed companies strive to maximize their value, while investors seek the highest returns on their investments Both parties have a shared interest in the price of securities, which can fluctuate based on the quality of information available Consequently, information plays a crucial role in this market; an efficient securities market is characterized by the prompt and honest reflection of information in the prices and interests of securities.
In 1970, Professor Eugene F Fama introduced the Efficient Market Hypothesis (EMH) to evaluate stock market efficiency, sparking significant interest among market participants and economists alike Despite extensive research, the EMH remains a contentious issue, primarily revolving around the critical question: "Are there truly efficient markets?"
Vietnam's securities market (VSM) is newly established and faces significant challenges, particularly in information disclosure compared to other regional markets Economists suggest that emerging markets like VSM typically exhibit inefficiencies, as supported by various studies Nevertheless, there is evidence that, despite the overall market inefficiency, certain stocks within VSM demonstrate a strong response to new information.
Due to above reasons, it has been decided to research the effects of information on securities’ price by applying EMH in VSM
This thesis offers an overview of the Efficient Market Hypothesis (EMH) and outlines the research methodology employed It delves into the impact of news announcements on the performance of security prices Lastly, the thesis presents my suggestions for enhancing price performance in the market.
Like every study, there are some limitations in the thesis It is only aimed at responses of listed banking securities to information in the period between 1 st January 2014 and
In order to achieve the thesis’s objectives, the following hypotheses were formulated
H 0 : New information does not affect securities prices In other words, the VSM does not react efficiently to new information
H 1 : New information does affect securities prices As, the VSM does react efficiently to new information
Besides, the study also used the case of event studies (Brown & Warner 1985) as a base method with 21-day event window
This study aims to analyze the influence of information on banking securities prices in Vietnam, addressing the interests of investors, regulators, and researchers The findings will serve as a valuable resource for investors seeking to enhance their profits by identifying new opportunities in the market.
The main contents of this thesis concluded four main chapters:
- Chapter IV: Recommendations and conclusions.
LITERATURE REVIEW
2.1.1, Definition of an efficient market
According to Fama (1965), an efficient market is characterized by investors striving for long-term gains or maximum profits, continuously predicting the future value of individual securities The competitive nature of these investors ensures that the actual prices of securities fully reflect all available information regarding past and anticipated events Consequently, in an efficient market, the price of a security represents its intrinsic value at any given moment.
2.1.2, Conditions of an efficient market
Despite the importance of EMH, it is difficult for a young securities market as Vietnam to meet all the conditions of an efficient market
The scale of the securities market is crucial, as it must accommodate a sufficient number of investors competing for higher profits These investors operate independently and randomly, ensuring that there is no bias among them.
It is essential for information to be announced randomly, as the timing of these announcements is independent of one another Consequently, all investors incur the same costs to access this information, which prevents them from achieving abnormal returns through information-based trading.
All participants in the market must possess an equal level of knowledge, meaning they are familiar with the same methods and analytical skills for evaluating a security Consequently, when new information emerges, it prompts immediate judgment, resulting in an instant adjustment of the share value The crucial aspect of this scenario is the unpredictable nature of new information, which keeps future prices uncertain.
The trade-off between risk and return is crucial in an efficient market, where share prices must reflect all available information To accurately calculate expected returns, it is essential to consider both intrinsic value and associated risks Investors must determine an appropriate expected return that aligns with their acceptable level of risk.
An efficient market is characterized by a large securities market where information announcements are unpredictable, numerous participants possess equal skills, and there is a consistent correlation between risk and return.
Normally, there are three levels of the EMH: the weak, semi-throng and strong forms
The weak form of the Efficient Market Hypothesis (EMH) asserts that a security's price incorporates all past events and information, making it impossible for investors to predict future share prices based on historical data This lack of correlation between past and future values means that new information emerges without any expectations Consequently, achieving excess returns through the analysis of past price movements is unattainable.
The semi-strong form of the Efficient Market Hypothesis (EMH) asserts that asset prices incorporate all publicly available and historical information Following the announcement of new information, market supply and demand adjust instantly, leading to a swift transition to a new equilibrium price The effectiveness of semi-strong efficiency hinges on the speed at which prices respond to public information In a semi-strong efficient market, the current price serves as the most reliable indicator for predicting future prices, as it reflects the associated risks and returns of investments.
The strong version of the Efficient Market Hypothesis (EMH) posits that asset prices reflect all available information, including private or hidden data, and adjust instantaneously to new information For instance, if a group with insider knowledge identifies that the current market price is undervalued, they will purchase shares to capitalize on the discrepancy until the price aligns with its true value Once equilibrium is reached, there is no incentive for further buying Similar to the semi-strong form, the prevailing market price serves as the most reliable indicator for investors to predict future price movements.
This research employs event study methodology, an econometric approach established by Brown and Warner in 1985, to analyze the impact of significant announcements on banking stock prices Focusing on eight listed banks on the VSM from January 1, 2014, to April 20, 2016, the study examines how earnings announcements, dividend declarations, and changes in company structure influence stock price reactions By meticulously reviewing VSM daily trading data and company newsletters, the research identifies key events and analyzes daily closing stock prices to assess the effects of these announcements on market performance.
2.2.2, Data types and data collection
The study analyzed daily closing stock prices and VN-index data from January 1, 2014, to April 20, 2016, focusing on the impact of specific announcements An event window of 21 days was established, examining the 10 days prior (t = -10) and 10 days following (t = 10) the event, with the event day marked as t = 0, to calculate abnormal returns Additionally, 250 daily return observations were utilized prior to the event window, commencing at t = -10.
The estimation window ranged from 260 days to t = -11, utilizing a market model to calculate daily abnormal returns This approach is favored in empirical research due to its statistically sound assumptions and empirical validity.
To assess efficiency, the market model was employed to compute daily abnormal returns, based on its hypothesis of a linear relationship between stock and market returns Data analysis utilized both descriptive and inferential statistics, with significance tested using a T-test at a 5% level Constants in the model were determined over a 250-day estimation period preceding the event window, while actual returns were calculated accordingly.
R jt = the actual daily return on security j at day t
The daily market return at the VSM on day t is represented by Rm t, while α j denotes the ordinary least squares intercept, reflecting the average stock return when the market is neutral The coefficient β j indicates the stock's sensitivity to market return, serving as the slope coefficient Lastly, ε jt represents the error term for security j on day t.
The normal return was calculated for each security for each day in the event window For stock j and event day t, the normal return ER jt was calculated as:
The VN-index was used as proxy to calculate market return (Rm t ) and the logarithm of daily market return was used Market returns were computed as:
P t = the VN-index on day t
P t-1 = the VN-index on day t-1
The daily share price return for each share in was also calculated using log-returns as:
R jt = the share price return for security j for day t
P jt = the share price of security j at the end of day t
P jt-1 = the share price of security j at the end of day t-1
The α j and β j values for each share in the sample were determined by regressing the daily log returns of the share price against daily market returns over a 250-day period leading up to the event window.
DATA ANALYSIS
The sample securities were chosen from banks At the moment, there are 8 bank share listed on website VN-Direct
Table 1: Socio-demographic details of selected banks
No Company name Date listed Issued shares
1 Asia commercial Joint Stock Bank Nov 21, 2006 937,696,506
2 Vietnam Joint Stock commercial Bank for industry and trade
3 Vietnam Export Import Joint Stock Bank Oct 27, 2009 1,235,522,904
4 Military commercial Joint Stock Bank Nov 1, 2011 1,631,181,818
5 National citizen commercial Joint Stock
6 Saigon – Hanoi commercial Joint Stock
7 Sai Gon Thuong Tin commercial Joint
8 Joint Stock commercial Bank for foreign trade of Vietnam
The data indicates that the majority of banks were established in 2009 Based on the number of issued shares, these banks can be categorized into three groups: large banks, which include VietinBank and VietcomBank; small banks, represented solely by National Citizen Bank; and medium-sized banks, which encompass the remaining institutions.
This analysis utilizes secondary data from January 2, 2013, to April 20, 2016, sourced from listed banks and VN-direct It examines 191 announcements related to earnings, dividends, and structural changes, assessing their impact on selected companies that met the sampling criteria The study calculates expected and actual returns for these firms in relation to each announcement, allowing for the determination of abnormal returns, average abnormal returns (AAR), and cumulative average abnormal returns (CAAR) Additionally, standard deviations and t-statistics are computed for AAR and CAAR to evaluate their statistical significance.
3.3, Data Analysis and Discussion of Findings
3.3.1, Companies Alpha and Beta Values
Prior to each event, the values for companies Alpha and Beta were recalculated using data from an estimation window The analysis of all 191 events revealed significant characteristics of these values.
The alpha values for banks are approximately zero, with daily highs and lows of 0.001064 and -0.000921, respectively When annualized, these values translate to about 38% and -33% Notably, larger banks like VietinBank and VietcomBank exhibit greater fluctuations in their share prices compared to smaller banks, indicating a wider range of alpha values.
Beta values exhibit a wide range, with the highest exceeding 1.623 and the lowest below -0.112 These values can be categorized into two distinct time periods: from 2014 to late 2015, beta values were lower compared to the period from late 2015 to the present This indicates that recent stock prices are significantly more sensitive to general market movements Currently, beta values have risen to around 1, suggesting that stock prices move in tandem with market fluctuations Notably, stocks of major banks like CTG and VCB have shown even greater volatility, with beta values around 1.3 and 1.6, respectively However, high beta values correlate with increased systematic risk, meaning that during economic downturns, the stock prices of CTG and VCB could experience sharp declines.
NVB, the smallest bank, exhibits a low beta value, peaking at approximately 0.366 and occasionally dropping to over -0.11 These statistics indicate that investors show less interest in NVB compared to other banks, resulting in its limited influence in the market prior to news events.
3.3.2, Descriptive Analysis of the Average Abnormal Return (AAR)
Table 3.3.2 presents the descriptive statistics for the average abnormal returns of stocks over a 21-day period Notably, the mean return during this event window is -0.0105% (-0.000105), which exceeds the median return.
Table 2: Table showing the statistical measure of AAR
The average abnormal returns (AAR) exhibit a negative skewness, indicating that the mean exceeds the median Additionally, the AAR distribution is platykurtic, suggesting it is flatter than a normal distribution, with a broader peak and a wider spread of values around the mean These characteristics reveal significant deviations from normality in stock returns, and with a mean of -0.000105, it highlights that changes in share prices are insignificant.
3.3.3, Behavior of Abnormal Returns on and around Announcement Day
Table 3: Table showing the AAR and CAAR around earnings announcement date Source: Author’s computation
Over a span of three years, a total of 191 announcements were made by various banks, with individual counts of 23, 23, 19, 22, 24, 27, 33, and 20 announcements respectively These included 62 earnings announcements, 8 dividend announcements, and 121 announcements related to structural changes, such as shifts in major shareholder ownership and significant human resource changes The results of these announcements, including the Average Abnormal Returns (AARs) and Cumulative Average Abnormal Returns (CAARs), are detailed in Table 3.3.3.
3.3.3.1, Behavior of AAR on and around Announcement Day
The analysis reveals that the average abnormal returns (AAR) surrounding the event date were predominantly negative, with the exception of days -4, -3, -2, -1, 1, 4, 7, and 8, which recorded AARs of 0.000140, 0.000348, 0.000611, 0.000695, 0.000837, 0.000144, 0.000613, and 0.000244, respectively This indicates that most days experienced actual returns that fell below expected returns Notably, while the announcement day itself showed a negative AAR, both the preceding and following days exhibited positive returns Additionally, the data suggests that AARs following the announcement day are more volatile than those preceding it, likely due to the intermingling of positive and negative AAR days.
Figure 1: Graphic representation of AAR for the 21-day event window
From day -5 to day 10, the average abnormal returns (AAR) exhibited a wave-like pattern, with peaks on days -1, 1, and 7, followed by a significant decline the next day Days 3 and 9 recorded the lowest AARs of -0.001122 and -0.000668, respectively This wave pattern indicates the market's inability to react immediately and fully to announcements, with no distinct trend surrounding the announcement day Consequently, this suggests that the information from the announcements was inefficiently reflected in the stock prices post-announcement for VSM.
3.3.3.2, Behavior of CAAR on and around Announcement Day
The cumulative average abnormal returns (CAAR) over a 21-day period following earnings announcements were calculated, revealing consistently negative values ranging from -0.003130 to -0.000175 The lowest CAARs occurred on the announcement day and the following day, at -0.002819 and -0.003130, respectively Conversely, the least negative CAARs were recorded on day 7 and day 10, at -0.000175 and -0.000364, respectively.
Figure 2: Graphic representation of CAAR for the 21-day event window
The cumulative average abnormal returns (CAARs) from day -2 to day 3 exhibited symmetry on day 1, while both groups showed a consistent upward trend from day -10 to day -3 and during the last 7 days The former group demonstrated a steady increase, whereas the latter experienced frequent fluctuations before reaching its peak Overall, Figure 2 illustrates that the market did not react instantaneously and objectively to earnings disclosures, as the behavior of CAARs post-event indicates an incomplete market reaction to the announcement This suggests that the negative abnormal returns were not a result of trading based on the information released to the public.
The hypotheses were evaluated using a t-test with a 5% margin of error, as indicated in table 3.3.3 To conduct the test, two samples with unequal variances were required, utilizing CAARs and a set of two-zero values The revised hypothesis was stated as “H 0: CAAR – 0 = 0,” maintaining the original meaning.
Table 4: Result of the t-test
The analysis revealed that the t-statistic was less than the negative t-Critical value for a two-tailed test, leading to the rejection of the null hypothesis H0: CAAR - 0 = 0 This indicates that the Cumulative Average Abnormal Return (CAAR) is statistically significantly different from zero at a 5% significance level.
Recommendations and conclusions
This thesis examines the impact of three key types of announcements—earnings announcements, dividend announcements, and structural change announcements—on share prices The study provides recommendations applicable to all three announcement categories to enhance investor understanding and market response.
As the first condition of efficiency market, VSM needs to be expanded to attract more investors The figure below is a comparison among VSM and other securities markets in area
Figure 3: Scale of securities markets in several countries in 2015
Source: Huynh The Du, Educated director of Fullbright Economics Program
Compared to its ASEAN counterparts like the Philippines, Indonesia, and Thailand, Vietnam's market size is relatively small, comprising only about 36%, 15%, and 20% of these countries, respectively Therefore, it is clear that expanding the Vietnamese market is essential for achieving greater market efficiency.
To expanding the securities market, government should encourage firms to participate in or amend the law to attract more attention not only in domestic but also from foreign countries
Skilled investors predominantly operate in Hanoi and Ho Chi Minh City, the two largest cities in Vietnam, while many investors in other regions lack essential skills Poor investment analysis can result in abnormal returns, often leading to misguided decisions based on inaccurate information To enhance their performance, these market participants must improve their understanding of the securities market and analytical techniques By addressing this knowledge gap, more investors could engage in the securities market, ultimately narrowing the disparity in information and analysis among them.
To enhance their investment skills, investors must recognize their knowledge gaps Engaging in activities related to securities across various regions in Vietnam is essential In today's technological age, distance learning presents an excellent opportunity for skill development.
Investors are increasingly drawn to securities with higher liquidity, making it essential for the Vietnam Securities Market (VSM) to enhance its liquidity to attract more participants To achieve this, the market must implement strategies that appeal to large institutional and foreign investors, alongside establishing relevant policies to boost stock market efficiency Engaging institutional and international investors, who possess advanced security analysis skills, will not only improve the availability of quality financial information but also elevate the overall information environment in the VSM.
Enhancing liquidity in the stock market can be achieved by increasing the number of firms listed Therefore, it is essential for the government to incentivize and encourage companies to go public Additionally, promoting the listing of more state corporations on the VSM is crucial for boosting market activity.
Investors prefer to invest in securities markets characterized by stable macroeconomic conditions, as these environments minimize systematic risks This stability fosters investor confidence and encourages firms to list their shares, ultimately leading to increased market activity and a stronger economy.
4.1.5, Building a strong and effective information system
Information is crucial for investors, as it serves as a vital tool for making informed decisions The absence of timely and accessible information can turn investing into a daunting challenge Therefore, establishing a robust information system that disseminates data quickly and affordably is essential Additionally, government oversight is necessary to promote transparency and public trust in information Creating credit rating organizations to evaluate and rate investments can further enhance the reliability of information available to investors.
The study examined the response of banking securities to announcements and assessed market efficiency Findings indicate a lack of significant correlation between share prices and announcements, with minimal reaction observed on the announcement day and in the surrounding days Consequently, it is concluded that announcements are not promptly or adequately reflected in stock prices, suggesting they have little to no significant impact on share prices.
The findings challenge the efficient markets hypothesis (EMH), which asserts that share prices should react instantaneously and without bias to new information Specifically, the behavior of stock prices does not align with the semi-strong form of the EMH, indicating a discrepancy in how quickly and accurately markets incorporate new data.
4.3, Limitation and proposal for further study
From a student's perspective, the thesis has notable limitations, having explored only a small segment of VSM over two months The analysis, based on a three-year period involving just eight bank securities, is insufficient for a comprehensive understanding of the vast securities market Future research should aim for a larger sample size and expand the scope to include more institutions Additionally, further studies are necessary to analyze the market's reaction to both positive and negative news.
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