Foreign capital flows and stock market – case study in vietnam for foreign investors’ decision of trading and their ownership

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUES VIETNAM THE NETHERLANDS VIETNAM – NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS FOREIGN CAPITAL FLOWS AND STOCK MARKET – CASE STUDY IN VIETNAM FOR FOREIGN INVESTORS’ DECISION OF TRADING AND THEIR OWNERSHIP A thesis submitted to Vietnam – Netherlands Program in partial fulfillment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By Ngo Van Man Supervisor Dr Nguyen Trong Hoai HO CHI MINH CITY, January 2013 ACKNOWLEDGEMENTS I am not able to finish this thesis without the guidance of my supervisors and committee members, supports from my classmates and colleagues as well as motivation and sharing from my wife I would like to express my very great appreciation to my supervisors, Dr Nguyen Trong Hoai and Dr Nguyen Xuan Thanh, for their patient guidance, enthusiastic assistance, valuable comments and suggestions as well during my research I also would like to take this change to thank Dr Nguyen Tan Thang for his ideas inspiring me to pursuit this topic for my thesis I highly appreciate staffs of the Administration Department and Library of Vietnam-Netherlands Program and my classmates in providing me good environment , facilities and supporting me technically to complete the thesis Finally, I would like to express my love and gratitude to my wife and colleagues for their understanding, supports, and encouragements to finish the research TABLE OF CONTENTS CHAPTER 1: INTRODUCTION 1.1 Problem Statement: 1.2 Research questions: 1.3 Research objectives: 2.1 Economic theories: 2.1.1 Definition of key concepts: 2.1.2 Relationship between foreign investor and firm characteristics 2.2 Related empirical studies: 2.3 Conceptual framework: 3.1 Research context: 3.2 Source of Data and its definition: 3.3 Research Methodology: 4.1 Descriptive Data Analysis 10 4.1.1 Summary of Data: 10 4.1.2 Correlation Matrix 13 4.2 Empirical Results: 13 4.2.1 For the whole sample : 13 (a) Firm characteristics and foreign investor’s buying volume: 13 (b) Firm characteristics and foreign investor’s selling volume: 14 (c) Firm characteristics and net purchase variable in relation to foreign investor’s ownership ratio 14 4.2.2 For specified industries: 15 (a) Finance Industry 15 (b) Construction Industry 16 (c) 5.1 Manufacturing Industry 17 Conclusions 18 5.1.1 Empirical results 18 5.2 Policy recommendation: 19 5.2.1 For investors: 19 5.2.2 For companies: 19 5.2.3 For government authority: 19 5.3 Limitations and Further research 20 5.3.1 Limitations: 20 5.3.2 Further research: 20 REFERENCES: 21 APPENDICES: 24 LIST OF TABLES TABLE PAGE Table 2.1: Summary of related empirical studies as following Table 2.2: Summary of Expected signs Table 3.1: Viet Nam Stock Market capitalization Table 3.2: The structure of industry in dataset Table 4.1:Description of variables of the whole sampled stocks 10-11 Table 4.2: The summary of value traded of the whole sample 11 Table 4.3: Percentage of FDI and Portfolio inflows over GDP in Viet Nam 12 Table 4.4: The summary of statistics by mean of each industry 12 Table 4.5: The coefficient signs between buy-volume with other variables 13 Table 4.6: The coefficient signs between sell-volume with other variables 14 Table 4.7: The coefficient signs between ownership ratio with other variables 14 Table 4.8: The coefficient signs for finance industry 15 Table 4.9: The coefficient signs for construction industry 16 Table 4.10: The coefficient signs for manufacturing industry 17 ABSTRACT Foreign capital flow in empirical studies has recently recovered into the developing countries and emerging markets Their impact on growth of such countries has empirically increased and also created some negative temporary effects Foreign direct investment positive correlates to growth, meanwhile portfolio investment seems to be negative correlated with it One of such effects through stock market is blamed for the crisis This paper aims to evaluate how firm’s characteristics affect to foreign investors in their investment both in buying and selling decision into listed firms in Vietnam stock market and to figure out their longer positions after that Keywords: foreign investors, stock market, firm characteristic CHAPTER 1: INTRODUCTION 1.1 Problem Statement: Financial integration has so far benefited to not only source countries but also host countries One of those benefits is to increase in investment in which capital flows from the capital-abundant places to hosts especially in developing countries As a matter of fact, in order to diversify risks in foreign investment as well as to cover the more often crisis in the global economy many hedge funds have also set up and operated to meet such trends Actually, portfolio investment inflows, together with foreign hedge funds, were blamed for the crisis This paper aims to study the relationship between foreign investors’ investment decision and the stock market via volume of trading of foreign investors in Viet Nam specified to those stocks heavily traded by foreign investors Therefore, this paper also helps to provide investors both domestic and foreign investors an adequate understanding about types of companies attractive the foreign investor’s decision of buying or selling as well as their long term position via ownership ratio 1.2 Research questions: The final purpose of this paper is to answer the following questions: (i) Do foreign investor’s buying and selling decisions really focus on stocks of large companies with better profitability? (ii) How their buying and selling volume affect to their ownership ratio? 1.3 Research objectives: The overall objective of this paper aims to evaluate which firm’s characteristics affect to foreign investors’ decision of selling and buying as well as to their ownership ratio for long term position Subsequently, the paper will further clarify them for each related industry CHAPTER 2: LITERATURE REVIEWS 2.1 Economic theories: 2.1.1 Definition of key concepts: (a) Foreign capital flows Typically, foreign capital flows into the host countries especially into developing and emerging ones in three channels: foreign direct investment, portfolio investment and foreign debt Theoretically, foreign direct investment flows into two ways: Greenfield and Merge & Acquisition activities which have been significantly increased in emerging markets (World Economic and Social Survey 2005) Portfolio investment in other hand includes equity securities or debt securities in forms of bonds, money market instruments, and financial derivatives Investors in country A could invest in country B or vice versa to seek for diversification in their portfolios in term of risk (balancing their portfolios) and expected (equity) return (b) Foreign investment in relation to stock market In many empirical studies, Foreign Direct Investment has also significantly and positively affected to domestic stock market development (Adam and Tweneboah) FDI which was found to be a complement of stock market development has positively correlated with market capitalization and domestic value traded (Claessens et al.,2001) Furthermore, along with the more global integration in finance market, foreign investment in portfolio investment has been empirically found increasing with its certain advantages such as a high mobility in flowing out and in markets as well as to reduce some existing limitations in the bond market in developing and emerging markets In short, foreign investors always seek for investment opportunities In other words, foreign investment flows from firms with low investment opportunities to firms with high ones However, an average return of some types of investors’ portfolios appears rather differentiated in which some investors actually want to own stocks or firms for specified objectives such as their business relationship and control rather than a high investment return (Kim et al, 2005) (c) Firm characteristics: Financially, analyzing firm characteristics concentrates on ratio analysis According to Ross et al (2005;2010), ratio analysis is often classified into following groups: Market value measures; Profitability Measures; Short term solvency or liquidity measures; Long term solvency measures; and asset management or turnover measures The paper will mainly focus on four of five above groups including market value, liquidity, profitability and long term solvency measures Furthermore, the paper will also take account of dividend policy because this policy along with others will affect to firm’s ability to sustain growth (Ross et al.,2005;2010) 2.1.2 Relationship between foreign investor and firm characteristics According to Baker et al (2009), FDI flows are much affected by components of stock evaluations which have been used to reflect mispricing specially in presence of capital account restrictions to limit arbitrage by portfolio investors a) Relationship between foreign investor with market value measures: Market capitalization has empirically a strong relationship with stock returns of foreign investors’ investment Due to redemption and liquidity requirement for foreign investment as well as to prevent systematic risk, foreign investors prefer large market capitalization firms Some studies demonstrated that foreign investors tend to prefer large market capitalization and strong financial firms (Kang and Stulz,1997; Lin and Shiu,2001; and Kim et al.,2005) On the contrary, other studies show a negative relationship that on average, smaller-size firms get higher stock returns than large-size firms (Banz,1981; Keim,1983 and Basu,1983) In regard to PB and PE ratio, some showed a negative relationship between PB ratio and stock returns ( Fama and French,1992; Daniel and Tittman, 1997) Hence, foreign investors can gain higher stock returns as they buy low PB stocks (Dhatt Kim and Mukherji,1999) On the contrary, others demonstrated that foreign investors prefer stock with high PB ratio (Lin and Shiu,2001 ; Kim et al.,2005; and Bae et al.,2011) In regard to PE ratio, this is considered to be the single most important variable in determining a share’s price As a matter of fact, Basu (1977), Breen (1978) and Dreman (1980a,1980b,1979) demonstrated that stocks with low PE ratio can gain a higher average returns than those with high PE ratio However, some recently empirical studies found that foreign investors tend to buy stocks outperformed and sell stocks underperformed relative to the market (Bae et al.,2011) b) Relationship between foreign investor with Profitability Measures: According to Kim et al (2005), there has been a positive correlation between foreign ownership and ROE ratio which was considered to be an important variable to foreign investors Similarly, Bae et al (2011) found that foreign investors traded stocks in Korean listed companies with high ROE and ROA ratio in which not only for the same current period but also for the subsequent period, their “buy” stocks have higher profitability than their “sell” stocks Furthermore, Kang et al.(2010) in studying firms listed on Korean Stock Exchange also demonstrated that corporate profitability measured by the EBITDA has positively correlated with foreign ownership c) Relationship between foreign investor with liquidity measures: According to Kang et al.(2010), liquidity ratio has positively correlated with foreign ownership into Korean Stock Exchange listed companies However, Vo Xuan Vinh (2010) found that liquidity ratio has negatively correlated with foreign ownership for firms listed on Ho Chi Minh Stock Exchange In other words, foreign investors seem to follow a buy and hold strategy for their long term position rather than for short term d) Relationship between foreign investor with financial leverage ratio: Many empirical studies revealed that foreign investors favor firms with low debt ratio (Kang and Stulz, 1997; Lin and Shiu,2001; Kang et al.,2010 and Vo Xuan Vinh, 2010) In other words, foreigners prefer firms with low leverage ratio as well Meanwhile, Bae et al.(2011) studied and found that firm leverage is not an important variable affect to foreign investor’s decision of buying or selling This is also consistent with the finding of Mishra and Ratti (2011) e) Relationship between foreign investor with Dividend Policy: Besides preferring large-size firms , foreign investors were found to prefer stocks with high dividend yield (Jeon et al., 2010; Mishra and Ratti, 2011 and Bae et al.,2011) 4.1.2 Correlation Matrix Finally, from the correlation matrix of variable (see Appendix 5) , at a glance we can see except that coefficients between ROE and ROA; Quick and Current ratio have a high correlation, other correlated coefficients among variables are not high Hence, the regression model will take account into multicollinearity among such variables 4.2 Empirical Results: 4.2.1 For the whole sample : (a) Firm characteristics and foreign investor’s buying volume: Table 4.5: The coefficient signs between buy-volume with other independent variables: Buy volume Whole sample Finance stocks MKC EBITDA ROE ROA PE PB Dividend Yield Debt Quick Ratio + + + + + (***) (**) (**) (**) + + + + (***) Construction stocks + + (***) (***) - (***) (***) (***) Manufacturing stocks (***) (***) + + - (***) (**) + + + (***) (***) (***) (***) (***) (***) (*** and ** present statistical significance level at lower 5% and 10%, respectively) It can infer that foreign investors tend to buy value stocks of large firms in finance and construction industry with better performance and low financial leverage And for all industries they decrease their buying volume for firms with high debt ratio Such findings are almost consistent with previous empirical studies 13 (b) Firm characteristics and foreign investor’s selling volume: Table 4.6: The coefficient signs between sell-volume with other independent variables: Sell volume Whole sample Finance stocks MKC + EBITDA + ROE + ROA PE + PB Dividend Yield Debt + Quick Ratio + (**) (***) (***) + + + (***) + + (***) - Construction stocks + + - (***) (**) (**) Manufacturing stocks + - (***) (***) (**) (**) + + (**) (***) (*** and ** present statistical significance level at lower 5% and 10%, respectively) Sell-volume variable for most samples has a positive relationship with EBITDA except for finance industry which sell-volume variable also has a significantly positive relationship with ROE ratio, a negative relationship with PB ratio except for manufacturing industry Market size is only to affect to foreign investor’s selling decision in finance industry The relationship among other variables is separately differentiated (c) Firm characteristics and net purchase variable in relation to foreign investor’s ownership ratio Table 4.7: The coefficient signs between ownership ratio with other independent variables: Ownership Net_buy MKC EBITDA ROE ROA PE PB Dividend Yield Debt Quick Ratio Whole sample + + + + - (***) (***) (**) (***) Finance stocks + + + + + - (**) Construction stocks + + + Manufacturing stocks + + (***) (***) ***) + - (***) - (***) + (***) + + (***and ** present statistical significance level at lower 5% and 10%, respectively) 14 Taken each separated result of buy volume and selling volume together, these findings suggest that although foreign investors prefer buying stocks of large firms with better performance, but for a longer position via their ownership ratio, they just want to own firms with low financial leverage without caring their firm size except Similarly, EBITDA which is found as a key important variable affect to their decision of buying and selling does actually play nothing in regard to their ownership ratio Such an EBITDA indicator only plays important role in construction field which most of their assets are tangible ones and imposed by one of three current depreciation and amortization methods available flexible to firm 4.2.2 For specified industries: (a) Finance Industry: Table 4.8: The coefficient signs for finance industry: Finance stocks MKC EBITDA ROE ROA PE PB Dividend Yield Debt Quick Ratio Net_buy Buy Volume + + + + (***) Sell Volume + + + (***) (***) - (***) (***) (***) (***) (***) (***) (**) (**) Ownership ratio + + + + + (***) (***) (**) (*** and ** present statistical significance level at lower 5% and 10%, respectively) Although foreign investors prefer trading value stocks of large firms with high profitability, low leverage ratio as well as with low dividend yield, they just want to own firms with high profitability and low financial leverage ratio via continuously holding their net purchase over years Firm’s market capitalization does not really affect to their long term position via ownership ratio 15 (b) Construction Industry: Table 4.9: The coefficient signs for construction industry: Construction stocks Buy volume MKC + EBITDA + ROE ROA PE PB Dividend Yield Debt Quick Ratio Net_buy (***) (***) (***) (**) (***) (***) Sell volume Ownership ratio + + + + + + - - (***) - (***) + + (***) (***) (**) (**) (***) (***and ** present statistical significance level at lower 5% and 10%, respectively) For construction stocks, foreign investors tend to buy value stocks of large firms being under priced and with low dividend yield and leverage or quick ratio Meanwhile, they incline to sell value stocks being over priced or of firms with high leverage ratio Firm size does not actually affect to their selling decision For a long term position, they just want to own firms with better profitability (high EBITDA) , low financial leverage ratio and being under priced Firm’s market size also does not play an important factor to their long term decision 16 (c) Manufacturing Industry : Table 4.10: The coefficient signs for manufacturing industry: Manufacturing stocks Buy volume MKC + EBITDA + ROE ROA PE PB + Dividend Yield + Debt Quick Ratio + Net_buy (***) (***) (***) (***) Sell volume Ownership ratio + - + + + (***) (**) + (***) + + + (*** and ** present statistical significance level at lower 5% and 10%, respectively) For manufacturing stocks, foreign investors trade stocks of high profitability in which they tend to buy growth stocks of firms with low financial leverage ratio, to sell stocks of firms with high quick ratio This seems to meet the fact discussed in item 4.2.2/part c that the market capitalization of the manufacturing industry is lowest in all industries, a high quick ratio shows an inefficient use of cash and cash equivalent assets Firm’s market capitalization does not affect to their trading both in buying and selling, it just only affects to their long term position via their ownership ratio 17 CHAPTER 5: CONCLUSIONS 5.1 Conclusions: 5.1.1 Empirical results: In relation to firm’s market value, the results show that firm’s market size does not significantly affect to their decision of buying and selling for the whole sample, it just influences their buying decision in finance and construction industry, and their selling decision in finance industry In regards to firm’s profitability, the findings strongly support the hypothesis that foreign investors prefer trading stocks of firms with high profitability for short term position as well as for long term position Furthermore, besides ROE and ROA ratio as indicators to measure firm’s profitability, EBITDA is also one another important factor affect to their decision of buying ,selling for short term position and of ownership ratio for long term position In regards to firm’s leverage ratio, the results significantly support the hypothesis that when foreign investors prefer buying and holding stocks of firms with low leverage ratio almost for all industries Meanwhile, foreign investors only sell stock of firms with high leverage ratio in the construction industry which agrees with the hypothesis, but differ from the hypothesis when foreign investors only sell stocks in the finance industry with low leverage ratio and also in manufacturing industry but not statistically significant In regards to firm’s liquidity, the paper reveals that quick ratio rather than current ratio is statistically significant to measure it However, the finding of relationship between it with ownership ratio is mixed and not statistically significant to conclude Similarly, although it has positively correlated with buying and selling volume for the whole sample but not statistically significant Instead, it partially has significance in each separate industry In connection with firm’s dividend policy, ownership ratio of all industries has almost positively correlated with it but not statistically significant That is the same to relationship between it with buying and selling volume for almost industries except in the finance industry that foreign investors prefer trading stocks of firms with low dividend yield 18 5.2 Policy recommendation: 5.2.1 For investors: For domestic investors who often refer trade of foreign investors to make their own short term investment in firms rather than other objectives, it’s necessary to consider firm size along with better profitability significantly measured by EBIDTA indicator, especially in stocks of construction field in term of buying decision and of manufacturing field in term of selling decision, rather than ROE or ROA ratio as usual Such investors should be careful as considering PB ratio to evaluate price of potential stocks in relation to foreign investors’ trade Because foreign investors tend to buy and sell such stocks with low PB ratio Especially, for stocks of construction field, they should further consider their selling (or buying) position in relation to a high (or low) PE ratio of stock Those who want to make a long term investment into firms which often benefited much from foreign investor’s ownership ratio should closely review their net purchase position and a debt ratio of those firms as well In short, the higher the net purchase or the low the debt ratio is, the more investment they should In addition, for construction firms, investors should take into account EBIDTA indicator to make their long term decision of investment 5.2.2 For companies: For listed companies and other companies who want to attract foreign investors, such companies should consider their financial leverage It’s likely that the higher this ratio, the lower the firm’s attraction to foreign investors Furthermore, firms in construction field should consider their strategy in relation to their attraction to foreign investment Because construction related stocks are being overpriced and foreign investors just want to reduce their ownership ratio for such stocks 5.2.3 For government authority: In regard to government policy, firstly there has been a positive relationship between netpurchase of foreign investors with portfolio equity Therefore, on years reported a low or negative net purchase of foreign investor in the stock market should be considered to 19 adjust related policies or regulations so that could attract foreign capital inflows or even compete it with other emerging neighbor countries like Myanmar, Malaysia,etc Secondly, Practices of accounting principles in amortization and depreciation should be standardized and meet with global standards Otherwise, other financial indicators to measure firm’s profitability which have been conventionally employed and reported such as ROE and ROA ratio, EBIT will deviate from their objectives and nature 5.3 Limitations and Further research: 5.3.1 Limitations: Firstly, data of selected stocks for finance industry only includes ones of large firms with their market capitalization over VND 100 billion and only stocks generated their foreign trading over year Secondly the paper selected three types of industries aiming to popularize for the whole market It’s likely that volume-trade of foreign investors along with their ownership ratio in smaller firms (with market capitalization under VND 100 billion) will show another vision of their investment tendency such as to own and expand them as larger firms or even globalize them in future 5.3.2 Further research: Is there any strong relationship between net purchase of foreign investors in Vietnam stock market and net inflows of portfolio equity into Vietnam for example in quarterly, half-yearly and yearly period ? Furthermore, whenever there has been a continuously net-purchase of foreign investors over certain period for stocks could be considered as a robust momentum to lead accordingly an increase of their price? To measure stock return of holding stocks by foreign investors for a longer period after their net purchase in early years one study of a portfolio with their net purchase for early years and its return after certain years should be researched For manufacturing firms, it’s necessary to take a further study about the relationship between foreign investor’s ownership ratio and their structure of owner equity as well as their profitability 20 REFERENCES: - Anokye M Adam and George Tweneboah “Foreign Direct Investment and Stock market Development: Ghana’s Evidence” School of Management, University of Leicester, UK Availabe at SSRN: http://ssrn.com/abstract=1289843 - Baker, M., C Fritz Foley and Jeffrey Wurgler, 2004 “The stock market and investment: evidence from FDI flows” Working Paper 10559 - Baker,M., C Fritz Foley and Jeffrey Wurgler, 2009 “Multinationals as Arbitrageurs: The Effect of Stock Market Valuations on Foreign Direct Investment” The Review of Financial Studies - Banz, Rolf W,1981 “The Relationship between Return and Market value of Common Stocks” Journal of Financial Economics, vol.9, no.1 (March):3-18 - Bae,C S., Min, J.H and Sunbong Jung, 2011 “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 (2011) 40,199-239 - Basu, S.,1977 “The Investment Performance of Common Stocks in Relation to Their PriceEarnings Ratios: A Test of the Efficient market Hypothesis” Journal of Finance, vol.32 no.3 (July):663-682 - Basu, S.,1983 “The Relationship between Earnings Yield, Market value and Returns for NYSE Common Stocks: Further Evidence” Journal of Financial Economics, 12 (June):129-156 - Berk, J., 1995 “A critique of size related anomalies” Review of Financial Studies 8, 275–286 - Bhatawedekhar, Dan Jacobson and Hussam Hamadeh, 2005 Vault Guide to Finance Interviews,pp 27-28 - Breen, W ,1978 “Low Price-Earnings Ratios and Industry Relatives” Financial Analysts Journal, (July- August 1978), pp.125-127 - Chan, L.K.C., N Jegadeesh, and J.Lakonishok, 1996 Momentum Strategies, Journal of Finance 51, pp 1681-1713 - Choong, C.K , Ahmad Zubaidi Baharumshah, Zulkornain Yusop and Muzafar Shah Habibullah ,2010.“Private capital flows, stock market and economic growth in developed and developing countries: A comparative analysis”, Japan and the World Economy 22 (2010) 107– 11 21 - Claessens, S., Daniela Klingebiel, and Sergio L Schmukler, 2001 “FDI and Stock Market Development: Complements or Substitutes?” - Colin Cameron and Pravin K Trivedi ,2009 “Microeconometrics Using Stata”, A Stata Press Publication - Dahlquist, M and Robertsson, G., 2001 “Direct foreign ownership, institutional investors, and firm characteristics” Journal of Financial Economics, vol 59, p 413 440 - Daniel, K and Titman, S, 1997 “Evidence on the Characteristics of Cross Sectional Variation in Stock Returns” Journal of Finance, vol 52, pp.1-33 - Dhatt, Kim and Mukherji ,1999 “The Value Premium for Small-Capitalization Stocks” Financial Analysts Journal Sept/Oct 1999; 55,5 pg 60-68 - Dreman, D ,1980a Contrarian Investment Strategy (New York: Random House, 1980) - Dreman, D ,1980b “Let Regression Be your Guide.” Forb (November 24, 1980), pp.210-211 - Dreman, D ,1979 “A Market Beating System That’s Batting 809”, Money (December 1979), pp 68-70 - Falkenstein, E.G, 1996 “Preferences for stock characteristics as revealed by mutual fund portfolio holdings.” Journal of Finance, vol 51 1996, p 111 /135 - Fama Eugene F and Kenneth R French, 1992 “The Cross-Section of Expected Stock Returns” Journal of Finance, vol 47, no.2 (June):427-466 - George T Friedlob and Lydia L.F Schleifer,2003 “ESSENTIALS of Financial Analysis” John Wiley & Sons, Inc 64-65 - Gompers, P.A., Metrick, A., 2001 “Institutional investors and equity prices.” Quart J Econ 116, 229–259 - Jegadeesh, N., and S.Titman, 1993 “Returns to buying winners and selling losers: Implications for stocks market efficiency.” Journal of Finance 48, pp 65-91 - Jeon, J.Q., Lee, C & Moffett, C.M, 2010 “Effects of foreign ownership on payout policy: Evidence from the Korean market” Journal of Financial Markets 14 (2011) 344–375 - Jonathan reuvid, 2002.The Corporate Finance Handbook, 3rd edition Kogan Page Ltd - Kang, J.-K & Stulz, R, 1997 “Why is There Home Bias? An Analysis of Foreign Equity Ownership in Japan” Journal of Financial Economics, vol 46, no 1, pp 3-28 22 - Kang, H.C., Dong Wook Lee, Kyung Suh Park, 2010 “Does the difference in valuation between domestic and foreign investors help explain their distinct holdings of domestic stocks?” Journal of Banking & Finance 34 (2010) 2886–2896 - Keim, Donald B.,1983 “Size-Related Anomalies and Stock Return Seasonality: Further Empirical Evidence.” Journal of Financial Economics, vol 12 no (June):13-32 - Kim, K., Ko, K & Cho, S.H., 2005 “Characteristics and performance of institutional and foreign investors in Japanese and Korean stock markets.” J Japanese Int Economies 21 (2007) 195–213 - Lin, C.H & Shiu, C.Y, 2001 “Foreign ownership in the Taiwan stock market-an empirical analysis” Journal of Multinational Financial Management, vol 13, no.1, pp 19-41 - Nareerat Taechapiroontong and Prapaporn Suecharoenkit, 2011.“Trading Performance of Individual, Institutional, and Foreign Investors: Evidence from the Stock Exchange of Thailand” International Research Journal of Finance and Economics ,ISSN 1450-2887 Issue 75 (2011) - Panu Chaopricha , Peng Chan , Dennis Pollard,2007 “Firm Characteristics and Stock Return” International DSI / Asia and Pacific DSI 2007 Full Paper (July, 2007) - Reinganum, Marc R,1983 “The Anomalous Stock market Behavior of Small Firms in January; Empirical Tests of the Year-End Tax Effect.” Journal of Financial Economics 12(June 1983):89-104 - Richards, A., 2005 “Big fish in small ponds: The trading behavior and price impact of foreign investors in Asian emerging equity markets.” Journal of Financial and Quantitative Analysis 40(1), 2-27 - Ross, S.A, Wester, R.W., Jaffe,J.E., 2005, 2010 Corporate Finance 7th Eidtion, McGraw-Hill and Irwin - Sincere, M.,2005 “Understanding Stocks” McGraw-Hill eBook,pp.44-45 - Vo Xuan Vinh, 2010 “Net private capital flows and economic growth–the case of emerging Asian economies” Applied Economics, 42:24, 3135-3146 - Vo Xuan Vinh, 2010 “Foreign Ownership in Vietnam Stock Market - An Empirical Analysis.” Available at SSRN: http://ssrn.com/abstract=1774937 - World Economic and Social Survey 2005, International private capital flows Chapter III International private capital flows 23 APPENDICES: Appendix 1: Testing multicollinearity among variables by using the variance inflation factor for the whole sample: Buy volume variable for whole sample Variable VIF 1/VIF Sell volume variable for whole sample Variable VIF Ownership Ratio variable for whole sample 1/VIF 0.275 Variable PB VIF 3.91 1/VIF 0.2555 0.277 MKC 3.9 0.2561 0.323 ROE 3.16 0.3168 0.345 EBITDA 2.99 0.3343 0.413 DIV 2.37 0.4215 0.604 Debt 1.62 0.6159 0.852 Q_Ratio 1.18 0.8488 0.892 PE 1.14 0.8748 net_buy 1.14 0.8786 ROA 8.53 0.117 PB 3.64 ROE 6.79 0.147 MKC 3.62 PB 3.7 0.270 ROE 3.1 MKC 3.64 0.275 EBITDA 2.9 EBITDA 3.46 0.289 DIV 2.42 DIV 2.88 0.347 Debt 1.66 Debt 2.13 0.470 Q_Ratio 1.17 Q_Ratio 1.17 0.852 PE 1.12 PE 1.12 0.892 Mean VIF 2.45 Mean VIF 3.71 Appendix 2:Testing multicollinearity among variables Mean VIF 2.38 by using the variance inflation factor for the finance sample: Buy Volume variable for Finance sample Variable VIF 1/VIF ROA 7.35 0.1360 MKC 6.48 0.1543 PB 5.38 0.1860 EBITDA 4.6 0.2172 ROE 3.83 0.2613 DIV 2.51 0.3988 Debt 1.89 0.5282 PE 1.41 0.7073 Q_Ratio 1.27 0.7888 Mean VIF 3.86 Sell volume variable for Finance sample Variable VIF 1/VIF MKC 6.11 0.16374 PB 5.36 0.18664 EBITDA 3.59 0.27881 DIV 2.18 0.45862 ROE 2.09 0.4792 Debt 1.54 0.65044 PE 1.41 0.70735 Q_Ratio 1.23 0.81274 Mean VIF 2.94 24 Ownership ratio variable for Finance sample Variable VIF 1/VIF MKC 6.97 0.1435 PB 5.79 0.1727 EBITDA 3.69 0.2708 DIV 2.25 0.4451 ROE 2.04 0.4898 Debt 1.47 0.6785 PE 1.42 0.7061 Q_Ratio 1.19 0.8412 net_buy_fin 1.11 0.9045 Mean VIF 2.88 Appendix 3:Testing multicollinearity among variables by using the variance inflation factor for the construction sample: Buy Volume variable for Construction sample Variable PB ROA MKC EBITDA DIV Debt Q_Ratio PE Mean VIF VIF 1/VIF 4.11 0.243 3.68 0.271 3.33 0.300 2.96 0.338 2.58 0.388 2.36 0.423 1.83 0.548 1.18 0.848 2.75 Sell volume variable for Construction Sample Variable VIF PB ROA MKC EBITDA DIV Debt Q_Ratio PE Mean VIF 1/VIF 4.11 0.243 3.68 0.271 3.33 0.300 2.96 0.338 2.58 0.388 2.36 0.423 1.83 0.548 1.18 0.848 2.75 Ownership ratio variable for Construction sample Variable PB ROA MKC EBITDA DIV Debt Q_Ratio PE net_buy_con Mean VIF VIF 1/VIF 4.83 0.207 3.78 0.264 3.42 0.293 3.24 0.309 2.57 0.389 2.51 0.398 1.84 0.543 1.36 0.736 1.33 0.751 2.76 Appendix 4:Testing multicollinearity among variables by using the variance inflation factor for the Manufacturing sample: Buy volume variable for Manufacturing sample Variable VIF 1/VIF Sell volume variable for Manufacturing sample Variable VIF 1/VIF Ownership variable for Manufacturing sample Variable VIF 1/VIF EBITDA 5.83 0.172 EBITDA 5.83 0.172 PB 3.81 0.262 MKC 5.67 0.176 MKC 5.67 0.176 DIV 3.25 0.308 PB 4.39 0.228 PB 4.39 0.228 ROE 2.76 0.363 DIV 3.39 0.295 DIV 3.39 0.295 Q_Ratio 1.87 0.535 ROE 3.21 0.311 ROE 3.21 0.311 PE 1.72 0.580 Debt 2.03 0.494 Debt 2.03 0.494 MKC 1.66 0.602 Q_Ratio 1.91 0.525 Q_Ratio 1.91 0.525 Debt 1.54 0.651 PE 1.79 0.559 PE 1.79 0.559 net_buy_man 1.37 0.732 Mean VIF 3.53 Mean VIF 3.53 25 Mean VIF 2.25 Appendix 5: Correlation Matrix of variables: All samles buy sell net_buy own MKC PE PB EBITDA ROE ROA DIV Debt Q_Ratio C_Ratio Finance buy sell net_buy own MKC PE PB EBITDA ROE ROA DIV Debt Q_Ratio C_Ratio buy sell 0.86 0.17 0.27 0.60 0.01 0.12 0.53 -0.03 0.23 -0.06 -0.21 0.12 0.09 1.00 -0.35 0.19 0.43 0.08 0.05 0.39 -0.07 0.15 -0.11 -0.15 0.10 0.08 buy 1.00 0.88 -0.23 0.15 0.40 0.00 0.02 0.37 -0.01 0.21 -0.16 -0.14 -0.04 -0.04 sell 1.00 -0.66 0.09 0.20 -0.04 -0.08 0.23 -0.04 0.15 -0.17 -0.13 -0.03 -0.03 net_buy own MKC PE 1.00 0.13 0.29 -0.13 0.14 0.21 0.09 0.14 0.10 -0.09 0.03 0.01 1.00 0.16 -0.01 0.08 0.07 0.00 0.20 0.14 -0.25 0.02 0.02 1.00 0.06 0.34 0.76 -0.02 0.35 0.04 -0.15 -0.01 -0.06 1.00 0.14 0.06 -0.07 -0.07 -0.04 0.20 -0.03 -0.03 net_buy own MKC PE 1.00 0.06 0.22 0.09 0.19 0.11 0.07 0.03 0.08 0.05 0.01 0.01 1.00 0.00 0.06 0.10 -0.08 0.28 0.21 0.43 -0.14 -0.13 -0.12 1.00 0.05 0.46 0.75 -0.03 0.57 0.17 -0.11 -0.28 -0.28 1.00 0.19 -0.11 0.11 -0.02 -0.11 0.02 -0.14 -0.14 PB EBITDA ROE ROA DIV Debt Q_Ratio C_Ratio 1.00 0.11 0.45 0.39 0.13 0.08 0.00 -0.01 PB 1.00 -0.04 0.38 0.01 -0.13 -0.10 -0.14 1.00 0.70 0.41 -0.01 -0.10 -0.06 1.00 0.46 -0.37 -0.12 -0.09 1.00 -0.15 1.00 -0.08 -0.20 -0.04 -0.21 1.00 0.97 1.00 EBITDA ROE ROA DIV Debt Q_Ratio C_Ratio 1.00 0.08 0.49 0.42 0.29 0.15 -0.21 -0.21 26 1.00 -0.11 0.61 0.08 -0.29 -0.27 -0.27 1.00 0.47 0.39 0.33 -0.17 -0.15 1.00 0.46 -0.23 -0.42 -0.41 1.00 -0.02 1.00 -0.23 -0.04 -0.22 -0.04 1.00 1.00 1.00 Construction buy sell net_buy own MKC PE PB EBITDA ROE ROA DIV Debt Q_Ratio C_Ratio buy 1.00 0.84 0.45 0.50 0.67 0.01 0.12 0.68 -0.01 0.13 -0.11 -0.19 0.04 0.03 sell Manufacturing buy buy 1.00 sell 0.90 net_buy 0.66 own 0.23 MKC 0.73 PE -0.02 PB 0.24 EBITDA 0.83 ROE 0.20 ROA 0.42 DIV 0.23 Debt -0.23 Q_Ratio 0.37 C_Ratio 0.36 sell 1.00 -0.11 0.44 0.60 0.18 0.09 0.57 -0.13 0.03 -0.20 -0.13 0.02 0.01 1.00 0.26 0.20 0.66 -0.09 0.15 0.77 0.14 0.36 0.18 -0.24 0.52 0.51 net_buy own MKC PE 1.00 0.19 0.24 -0.28 0.07 0.30 0.19 0.19 0.13 -0.14 0.04 0.04 EBITDA ROE ROA DIV Debt Q_Ratio C_Ratio 1.00 0.31 1.00 -0.03 0.12 1.00 -0.01 0.51 0.15 1.00 0.30 0.67 0.24 0.24 -0.09 0.16 -0.14 0.57 0.19 0.16 -0.12 0.37 -0.04 -0.03 -0.03 -0.01 -0.32 -0.01 0.26 0.17 0.11 0.24 -0.02 0.32 0.12 0.15 -0.04 0.20 net_buy own MKC PE 1.00 0.17 0.46 0.09 0.27 0.52 0.19 0.31 0.19 -0.11 -0.06 -0.09 PB PB 1.00 0.11 0.11 -0.02 0.15 0.01 -0.05 1.00 0.79 0.35 0.06 0.04 -0.01 1.00 0.35 -0.36 0.16 0.12 1.00 -0.07 1.00 -0.07 -0.21 -0.03 -0.24 1.00 0.85 1.00 EBITDA ROE ROA DIV Debt Q_Ratio C_Ratio 1.00 0.26 1.00 0.06 0.03 1.00 0.17 0.36 0.29 1.00 0.20 0.89 -0.08 0.20 0.01 0.24 -0.06 0.39 0.19 0.44 -0.07 0.49 0.19 0.30 -0.10 0.24 -0.21 -0.19 -0.01 -0.11 0.17 0.20 -0.10 0.05 0.14 0.19 -0.11 0.03 Source: Author’s calculate on the data set with Stata software 27 1.00 0.27 0.45 0.22 -0.08 0.21 0.20 1.00 0.86 0.42 -0.40 0.06 0.07 1.00 0.54 -0.49 0.24 0.24 1.00 -0.38 1.00 0.19 -0.48 0.14 -0.49 1.00 0.96 1.00 ... foreign investors’ investment decision and the stock market via volume of trading of foreign investors in Viet Nam specified to those stocks heavily traded by foreign investors Therefore, this... Definition of key concepts: (a) Foreign capital flows Typically, foreign capital flows into the host countries especially into developing and emerging ones in three channels: foreign direct investment,... some existing limitations in the bond market in developing and emerging markets In short, foreign investors always seek for investment opportunities In other words, foreign investment flows from