The thesis with the goal of systematizing is discussed by the theoretical schools on diversification of portfolios; at the same time, summarizing the empirical studies, drawing lessons from the diversification of portfolios in economies with similar conditions like Vietnam.
the process of selecting and implementing diversification methods is INTRODUCTION imminent On the other hand, through screening and checking market The urge of dissertation topic activities regarding the diversification of investment portfolios, pointing out After more than 15 years of evolving and developing, the Vietnam all the pros and cons, challenges and opportunities which affect diversification stock market has marked significant changes in market size and sophistication activities in Vietnam stock market in both direct and indirect manners is as one of the fastest growing markets amongst the frontier markets and highly necessary; that will contribute much to the efficient use of capital emerging markets The strong, solid growth in the size of Vietnam stock resource, help lessen the risks associated with investment activity and promote market has played the key factor in the sustainability of the capital market, as higher level of efficiency for both investors and the whole market, thus lead to a channel for mid- and long-term investments sustainable economic growth Being able to systemize from the summaries of all research work done in financial management, capital resource allocation, During the 2000-2005 period, Vietnam stock market capitalization and investment diversification play the key role in developing and perfecting only accounts for approximately one percent of the nation’s GDP This further studies in this expertise in Vietnam measure, however, soared to account for 22,7% of GDP in 2006 and again to 43% of GDP in 2007 Total stock market capitalization reached 1,64 trillion Overview of Foreign Studies VND ($72 bondion) in year 2016, an increase of 345.000 bondion VND 2.1 Foreign Studies (26,6%) or $15 bondion compared to the end of 2015 Despite the overall Portfolio diversification theory has been the subject of theoretical and incredible steps forward of the market, several problems remains with market empirical studies all around the world in many variations; the results, volatility and limited liquidity, especially during correction or recession however, vary depending on the nation and time period in which the study is periods Moreover, products listed on the stock market are limited in conducted For example, Lee, Fah and Chong (2016) used CAPM model as variations and of low quality, therefore incapable of meeting the desire of well as the Markowitz’s Modern Portfolio Theory to examine the level of investors to diversify their investment portfolios and to hedge for any efficiency of portfolio diversification in Malaysia; Verchenko (2000) applied investment risks (due to lack of derivative products) Other market add-on simple correlation and co-integration analyses to measure the correlation of services are also limited (such as lack of short-selling orders, margin stocks in 10 European emerging markets: Ukraine, Lithuania, Estonia, Latvia, borrowing, forward sales…); the level of market transparency has not met Poland, Hungary, Slovenia, Russia and Czech Republic; Zaimovic, Berio public investors’ requirements Mustafic (2017) applied Markowitz’s Modern Portfolio Theory and PCA In a fast growing yet highly volatile market, the need for a systemic technique to examine the interest and level of efficiency of portfolio market rationale for market management (securities companies, funds diversification in emerging markets of South East Europe; Zhou (2010) management companies, mutual funds…), along with experiences gained in examined the level of portfolio diversification from the perspectives of the Chinese investors; Hallinan (2011) applied Markowitz’s Portfolio Selection Kim Lanh (2011) applied Markowitz’s theory to calculate overall expected (1952) and the summary of the Modern Portfolio Theory in order to construct returns and investment risk on the Vietnam stock market, thus weighed the six different portfolios (containing stocks of emerging markets); Porwal appropriate capital resource contribution for the investment portfolio Ngo (2014) applied Markowitz’s Portfolio Theory (1952) to study the Dang Hoang (2013) applied the Modern Portfolio Theory to construct an characteristics of the frontier markets in comparison to emerging markets to efficient investment portfolio on the Vietnam stock market Le Quy (2013) maximize outcome of investors’ portfolio diversification; Randolph (2011) combined Markowitz’s theory and top-down stock analysis method to applied Markowitz’s Modern Portfolio Theory (1952) to examine the portfolio construct an efficient investment portfolio for personal investors Hoang diversification of Africa’s frontier stock markets; Hearn and Piesse (2008) Thanh Duong (2005) applied Markowitz’s Modern Portfolio Theory to test for applied three different models, such as non-normal distribution model, the efficient frontier, optimal investment portfolio, and the market curve from GARCH model, and CAPM model to analyze the possibility of maximal 04/20/2004 – 02/23/2005 Vo Thai Phong (2011) applied Markowitz’s portfolio diversification by combining South Africa’s stock market (the Modern Portfolio Theory to construct an efficient investment portfolio with strongest nation in the SADC community) and such in Swaziland, Namibia listed stocks on HOSE using data observations from 2004 to 2011 Tran Van and Mozambique (smaller nations in the SADC community) in the period of Tri (2015) applied th CAPM model and Markowitz’s Modern Portfolio 1992-2007; Gupta, Jithendranathan and Sukumaran (2005) applied the Theory to test for the construction and management of the investment GARCH model to construct an optimal diversified investment portfolio for portfolio using data from HOSE and HNX from 2008-2013 Truong Dong Australian investors to examine the benefits of investing in African frontier Loc and Tran Thi Hanh Phuc (2012) examined the interest-risk relationship of market; diversification when an investor from an ASEAN country only the listed stocks on HOSE based on CAPM model using HOSE index data invested in a country’s index fund or isolated stocks; Baig, Bilal and Asiam and prices of 80 listed stocks from 01/02/207 to 12/31/2009… (2016) examined the correlation among different stocks in such emerging 2.3 The Gaps in Research Topic markets as India (SENSEX) and those in such frontier markets as Pakistan Domestic researchers have based their work of investment (KSE100) and Sri Lanka (CSE) in order to explore possible efficient diversification on the Modern Portfolio Theory However, empirical research investment portfolios on the Vietnam stock market has been limited, with small scope of 2.2 Domestic Studies of the Topic investigation on isolated groups of stocks No research has covered all actual Theoretical and empirical researches regarding the portfolio applications of investment diversification on the Vietnam stock market diversification theory in Vietnam are limited Specifically, Vo Thi Thuy Anh One of the few research works on portfolio diversification on (2012) applied Markowitz’s Modern Portfolio Theory to determine the Vietnam stock market conducted recently is “Conducting and Managing stock outperforming stocks The author used actual database during 2009-2011 portfolio in Vietnam” by Tran Van Tri (2015) However, this research work period for listed stocks on HOSE and HNX before December 31, 2008 Trieu does not cover all theories on investment portfolio diversification, pros and cons of each theory, and applications of those theories on stock portfolio in Vietnam stock market With the derived result of the test, the author attempts other countries with market functions similar to that in Vietnam This research to conclude the benefits of applying the portfolio theories in constructing and also does not mention the investment portfolio diversification in Vietnam in managing the diversified investment portfolio in Vietnam full scale, including market and legal matters Tran Van Tri’s research (2015) Subject and Scope of Research only reaches out to explore the technical aspect of conducting and managing stock portfolio Besides, Tran Van Tri’s research (2015) only examines the 4.1 Subject of Research CAPM model on investment opportunity set and does not summarize any The dissertation focuses mainly on summarizing theoretical models take-away lessons on constructing and managing diversified investment and empirical evidences on investment diversification collected from portfolio in emerging and frontier markets that are similar to Vietnam; risk- emerging and frontier markets to apply accordingly to the situation of free assets and strings of research topic are not covered in the work as well Vietnam stock market and suggest appropriate investment strategies for This is the vital gap in which this research will continue to explore to professional investors Upon the theoretical foundations and empirical fit in with the Vietnam market research previously done, the dissertation suggests possible market situations Purpose of the Research and legal matters to help professional investors adequately allocate their Given the academic work and empirical evidences of the Vietnam capital assets and diversify their investment portfolios in Vietnam market stock market mentioned above, this dissertation focuses on systemizing all during 2007-2017 period theories on investment diversification, as well as summarizing empirical Moreover, the dissertation compares the outcomes of theoretical- research and concluding the investment diversification in such similar markets based investment diversification in several markets in order to conclude a as Vietnam (emerging and frontier countries) Besides, this dissertation common pattern as well as typical characteristics of each of the markets attempts to clarify actual investment diversification in financial organizations (including those in emerging and frontier markets) Therefore, the dissertation and investors, thus points out the results as well as the drawbacks and their concludes a common pattern in investment diversification, pros and cons of causes On the basis of checking and summarizing all theories of investment the application of principles of investment diversification in emerging and diversification that are suitable for Vietnam stock market, two major theories frontier markets used to construct and implement an investment portfolio in Vietnam are the 4.2 Scope of Research CAPM model and Markowitz’s Modern Portfolio Theory With the objective of optimizing the allocation of assets to construct a The dissertation focuses on investment diversification in Vietnam diversified investment portfolio in Vietnam stock market during 2007-2017 stock market by describing, comparing, and analyzing investment strategies period, this dissertation attempts to verify the result of the constructed used by active local and foreign investment funds/investment management diversified investment portfolio and compare it to the overall performance of companies However, due to limited data sources, the dissertation emphasizes specifically on investment strategies used by investment funds during 2007, that of the market Therefore, the method should point out actual empirical 2008, 2016, and the first half of 2017 evidence for each unique investment situation Based on the scope of research, the author researches, constructs, and Composition of Research: The dissertation consists of three reallocate financial resource in order to diversify investment portfolio based chapters in which the research results are presented and recapped on various penetration methods and recommendations suitable for stock CHAPTER 1: REASONING FOUNDATION OF PORTFOLIO market in Vietnam DIVERSIFICATION ON STOCK MARKET Research Methods 1.1 Overview of the Portfolio Diversification The dissertation applies two different research methods to analyze the The author summarizes the definitions and forms of the stock objectives of the research, which are: portfolio diversification such as types and subtypes of assets, aspects of an 5.1 Non-parametric Method: Non-parametric method does not economy, among different funds, different economies, different currencies, require that the population being analyzed meet certain assumptions, or durations of investments, quality of investment assets and financial tools parameters, combining with other mathematical model and the matrix 1.2 Basics of the Portfolio Diversification programming, to solve for the proportions of each of the stocks in the investment portfolio using Solver function in Excel This method solves for According to Ongkrutaraksa’s summary (1996), Modern portfolio such objectives of the research as: (i) risk-free yield and (ii) short selling theory involves the allocation of capital assets (both underlying assets and strategy On that basis, the research calculates levels of efficiency and risk their derivatives) in diversifying an original investment portfolio From 1950 associated with the diversified investment portfolio Discounted cash flow to 1970, the theory of portfolio diversification and the single factor model, method is also applied in the research by using “Bootstrapping” technique to based on the multivariate effect (MVE), have been the key factors in convert data to risk-free in alignment with stock data allocating and diversifying assets in a portfolio This theory was originated by Markowitz (1952, 1959) and developed further by Sharpe (1963) Other 5.2 Parametric Method: Parametric method, run by Eviews 8, is theories related to this work, such as the CAPM model developed by Sharpe used to parameterize the population of stocks returns and to test for the (1964) and Lintner (1965) and the arbitrage pricing theory (APT) – the randomness of the market and the normal distribution of data set of stocks foundation for the multiple factors model developed by Ross (1976), were returns The use of this method also allows the author to run a regression derived from MVE The three theoretical models are closely related to one model to test the correlation between the efficiency of the portfolio and that of another in diversifying investment portfolio the market On that basis, the author applies the CAPM model to test whether the return rate of a non-parametrical diversified portfolio is proportional with In chapter 1, the author describes the following variations of portfolio The MVE model has three main drawbacks: (1) the portfolio diversification: (i) modern portfolio theory; (ii) Tobin’s and Sharpe’s portfolio optimization process may lead to a portfolio being excessively concentrated; theory; (iii) factor model; (iv) CAPM model; (v) arbitrage model; and (vi) the (2) the model may not sufficiently explain and account for market shocks; (3) Black-Litterman the corner solution, a major drawback of a model when applied in actual model The performance measures of portfolio diversification are summarized as follow: cases, happens when investors accept the short selling position of some of the assets in an investment portfolio, which lead to variables of those assets take (i) For non-validation portfolios: the calculation is the return gain value zero or negative (Black & Litterman, 1992) In reality, short selling is divided by the standard deviation of return Popular indices include the Sharpe legally restricted in many countries ratio, information ratio (IR), Modigliani and Modigliani ratio (M&M), Sortino ratio (SR), Treyno ratio (TR), value at risk ratio (VaR), Jensen’s Alpha ratio, The CAPM model: Elbannan (2015) insisted that the CAPM model Treynor & Mazuy ratio (T&M), and Henriksson & Merton ratio (H&M) was criticized in many forms of research because it accounts for risk-free rate without limits When constructing a diversified portfolio in a specific time (ii) For validation portfolios: the CAPM model, with the addition of period, investors will only pay attention to the risk-return trade off of that new risk factors from the multiple factors model, is used to measure portfolio period; meanwhile, the beta of CAPM model explains all risk assets by diversification efficiency In fact, many researchers agree that the sole CAPM accounting for expected rate of return and all market variables model (risk-free rate) is insufficient in measuring the level of efficiency of a diversified portfolio As a result, macroeconomic, business fields, and The APT model: the APT is incapable of accounting for the risk business unique factors are factored in the multiple factors model to derived a factors that affect rate of return of assets in a diversified portfolio more confident estimation of the portfolio diversification theory Fama and The Tobin’s Q model: the drawback of the the q coefficient is that if French (1992) added business size variable and the book-to-market ratio to the the market does not adequately value the companies in one period, then theory Carhart (1970) suggested the use of momentum effect Other revaluation is required in the next period; that means the μ in Tobin’s Q macroeconomic variables such as interest and inflation, investors’ behaviors model is rather large and methods of allocating assets and diversifying investment portfolio The Black-Litterman model: legal risk increases due to lack of (depending on the size of market capitalization and market growth rate) are also factored into other diversification theories Those variables are mainly coordination accounted for and factored into the Fama-French model, Carhart model, company/industry analysis Jensen’s Alpha model, and GARCH model among guests’ situations, market expectation and The author concludes that each model has its own drawbacks Therefore, the modern portfolio theory with all of its components and 1.3 Drawbacks of the Portfolio Diversification experimental results in certain situations are somewhat overstated But without the theoretical foundations to assess, researchers will be unable to Secondly, the business management cultures vary in different markets explain the logics behind asset pricing methodology and rates of return of the with different forms of custom and law For example, some markets allow for main financial assets in a diversified investment portfolio short selling of stocks and some not (e.g China) Grasping the market uniqueness will help to make appropriate decisions; 1.4 Research Application on Portfolio Diversification in the Thirdly, the effect of globalization and free trade agreements can World influence investors’ decision If investors can exploit from a less integrated The author states empirical evidences conducted when applying country with weaker correlation, they can benefit from more investment portfolio diversification models to actual case studies in the emerging and opportunities For example, the emerging and frontier markets are less frontier markets The effect of investment portfolio diversification in such integrated compared to those in developed countries However, barriers to countries is much greater than that in developed countries due to low market and high transaction fees are the limits of frontier markets; correlation However, in order to optimize the effect of portfolio Fourthly, the crisis spread may affect multiple markets Therefore, diversification, besides the application of theoretical models, investors need to more reliable analyses and forecasts are needed to lessen the risks for look into all of the unique characteristics, opportunities and drawbacks of investors; each market to exploit any possible investment chances Researchers have Fifthly, identifying the source of model factors that influence the come to an agreement that frontier market has low level of integration; stocks’ rate of return (e.g factors are nation- or industry-ralated) will help therefore, investors can benefit from investment portfolio diversification Yet investors choose the appropriate stocks for their portfolio; high transaction fees and barriers to the market may concern investors when Finally, potentials of currency crisis may happen in a highly making decisions in diversifying their portfolio in such market From competitive world, when many economies use exchange rate mechanism to empirical evidences and actual research results, the author has taken away help boost exports and economic growth That may eventually lead to some lessons for Vietnam stock market currency war “phenomenon” (devaluing currencies to boost exports), which 1.4.1 From Vietnamese Investors’ Perspectives negatively affect stock markets Being able to forecast economic trends will The Vietnamese investors may apply the theories of investment help investors minimize risks when constructing their diversified investment portfolio portfolio diversification to explore the optimal investment portfolios based on types of industries and nations Nonetheless, when researching investment 1.4.2 From Foreign Investors’ Perspectives portfolio diversification, investors should take the following limits and Firstly, Vietnam stock market is classified as a frontier market, which means low level of integration; therefore, investors should expect many validations into account: Firstly, the randomness of rates of return because many emerging opportunities for investment portfolio diversification Similar to other frontier markets not have sufficient data to construct a normal distribution analysis; markets, limits for entry exist such as barriers to market, high transaction fees, limited holdings of foreign investors, low currency convertibility, and rate; (v) stock borrowing and lending system (SBL) only allow depository prohibition of short selling… These limits lessen the benefits investors could members at VSD to borrow securities in case of after trading-hour correction achieve from investing into Vietnam, thus may lead to losing opportunities of orders to meet the liquidity requirement; therefore, the benefits of arbitrage capital inflows into the country; trading for domestic ETFs are cleared out; (vi) investors find that spending a Secondly, despite the action from the Vietnamese government to large amount of capital on the ETF certificate while having interest only in gradually clear out the above limits, compared to other emerging and frontier some stocks that reach the room limit is not an optimal investment option; markets, consideration for more open regulations to foreign investors is vital (vii) margining is not allowed in the trading of ETF certificates; (viii) in attracting capital inflows into Vietnam regulations and mechanisms for the publication of information of ETFs are CHAPTER 2: PORTFOLIO DIVERSIFICATION ON unique with complicated procedures VIETNAM STOCK MARKET Secondly, open-end funds have gradually replaced closed funds and 2.1 Legislative Framework on Portfolio Diversification have dominated in Vietnam stock market due to the fact that the repurchase of Legislative framework on the portfolio diversification activities, fund certificates is not mandatory for ETFs and that the duration of fund which applies to financial and economic organizations and personal investors, certificates is long These limits leave the investors with the need of capital no is relatively limited Current legal documents tend to stimulate the choice but sell their fund certificates on the secondary market; that is the main diversification of investment portfolios in an indirect way, mostly to control cause for the shift of capital from closed funds to open-end risk and capital adequacy and to serve the macroeconomic policies Thirdly, although smaller in the number of funds on Vietnam stock 2.2 Current Case of Portfolio Diversification on Vietnam Stock market, closed funds have the advantages in the size of funds and better Market profitability measure sue to larger sources of capital and more efficient The author of this dissertation focuses on analyzing the current case management of portfolio diversification activities conducted mostly by financial funds: (i) 2.3 Analysis on Portfolio Diversification on Vietnam Stock index funds, (ii) closed funds, and (iii) industries-based open-end funds Market Conclusions derived from the research include: By examining the statistics on risks, return and other performance Firstly, the Exchange Traded Funds (ETFs) have high level of measures of the portfolio diversification activities on Vietnam stock market in diversification in terms of the number of stock codes; however, the the last five years, the author has concluded the following: the level of profitability measures are rather low due to: (i) ETFs base their investment profitability (excluding (low) management costs of ETFs) from portfolio activities on certain indices; (ii) ETFs have to abide by various regulations diversification is relatively low compared to the high level of risks; the level upon their operations; (iii) the prohibition of short selling in Vietnam; (iv) of profitability (excluding (high) management costs of closed/open-end fund) high level of volatility in macroeconomic environment, specially the exchange from portfolio diversification of closed/open-end funds is higher than that of ETFs, and some funds perform better than the market with lower level of Vietnam market with unique characteristics of a frontier market, limits on risks; the level of portfolio diversification among all investment funds, objectiveness and asymmetric information, weak management, and the lack of including closed/open-end funds and ETFs are high; therefore, the levels of legislative framework; (ii) limits of each of the models that make the use of profitability and risks are well improved one single model infeasible in reality; and (iii) the results of research works The presence of the limits is mainly due to market problems such as done in other emerging and frontier markets with similar conditions to the stocks with low quality, low market liquidity, limited market products and case of Vietnam In fact, other researchers have applied multiple models to services, small market size, lack of investor base in the repo market, lack of examine the efficiency level of portfolio diversification on the basis of the credit rating agencies, and the underperformance of stock exchanges and Markowitz’s Modern Portfolio Theory securities depository These limits explain the immaturity of the market and In chapter 2, the author applies the Markowitz’s Modern Portfolio affect the performance of the funds either directly or indirectly The problems Theory as well as Tobin and Sharpe’s theory and parametric model to concerned with legislative framework also have an impact on the performance examine the possibility of portfolio diversification application and its level of of funds, such as the prohibition on the short selling of stocks, while failing to profitability on Vietnam stock market, thus seeks the answers for research promote investors’ incentive to make long-term investments and lacking questions in this dissertation sanctioning mechanisms on market violations 2.4.1.2 The Application of Modern Portfolio Theory (MPT) on 2.4 Constructing and Examining the Theory of Portfolio Vietnam Stock Market Diversification on Vietnam Stock Market Maximization: Max Z E(RZ)+ rf*z0 with the condition Z’*C*Z = c, 2.4.1 Recommended Theories of Portfolio Diversification Z’*1N =1, or 2.4.1.1 Justification for Choosing the Theories in the Case of Minimization: Min Z Z’*C*Z with the constraint E(RZ)+ rf*z0 = c, Vietnam Market Z’*1N =1 and zi>= (i=0,N) On the basis of portfolio diversification theories stated in Chapter 1, the author chooses the Markowitz’s Modern Portfolio Theory to examine the Where: possibility of portfolio diversification application and its level of profitability E(RZ): expected return of the stock portfolio on Vietnam stock market, with additional examination on such two added N: number of stocks in the portfolio binding scenarios as: portfolio with risk-free securities (treasury bonds) and portfolio with short selling option This research approach combines the rf:: risk-free rate Markowitz’s Modern Portfolio Theory and the Tobin and Sharpe’s theory on z0: weight of risk-free securities in portfolio risk-free assets The author bases his approach on (i) the immaturity of Z and Z’ are transpose matrices, representing the weights stocks and (9) are unique characteristics of Vietnam stock market and will be tested risk-free securities in the portfolio during the examination of the MPT C: covariance matrix of returns among stocks 2.4.2 Phases of Research 1N: unit of matrices (N*1) Based on the Vietnam macroeconomic state and the stock market during 2007-2017, the author selected data in years 2007, 2008, 2016, and the There are two special constraints: (1) prohibition of short selling: zi>= first half of 2017 to conduct the research on and examine portfolio for all i; (2) the absence of risk-free securities: z0 = diversification on Vietnam stock market The data selection ensures the 2.4.1.3 Conditions on the Examination of Portfolio Diversification representation of different phases of the market (market boom in 2007, in Vietnam recession in 2008, and recovery and stable growth during 2016-2017) On the Despite the salient advantages and the ease of usage and application, other hand, this selection covers main phases of the history of Vietnam stock the MPT still depends on some assumptions that require investors’ attention market, including the history (years 2007 and 2008) and current market (Reto, 2003), for example: (1) investors intent to maximize their profits and situation (years 2016 and 2017) to forecast the future Therefore, the data minimize the risks; (2) investors only look at the expected return and risks selection allows for the close grasp of market states to derive the most measured by the standard deviation when making decision; (3) all investors appropriate answers to the objective questions of the dissertation have the same risk and return expectations; (4) all investment decisions are 2.4.3 Constructing a Diversified Portfolio by using non- made in the same period of time; (5) all investors have the same access to parametric Method information (no market flaws from asymmetric information); (6) transaction 2.4.3.1 Data Description and Analysis Method fees and price gap are negligible; (7) returns of all assets are normally distributed; (8) no restrictions on market actions and asset positioning; (9) no a Stock Data Description: on January 1st, 2007 (the beginning barriers to lending or borrowing of risk-free assets period of the research) there were 108 listed stocks on the HOSE Therefore, the author takes into account all of the stocks to run a standard deviation No theoretical models meet all nine assumptions above in actual analysis on return of each of the stocks 24 stocks that meet the stochastic market condition However, the purpose of the research is to determine condition and the standard analysis will be chosen for the research model whether the assumptions are feasible in actual case studies In case of Vietnam, the author assumes: assumptions (1) to (6) are met; the stocks that Stock prices are factored in to the model to eliminate any common meet assumption (7) will be chosen to construct a portfolio (meaning returns impacts that may distort the return rate such as dividends of stocks or stock on those stocks meet the standard deviation requirement); assumptions (8) and splits Sources of data include Reuters and Bloomberg databases; whereas Reuters edits the data, so the daily return rate of each stock is precise There are total 865 observations for each stock in 2007, 2008, 2016, and the first decides the trading prices Therefore, all of the 24 stocks can be factored in to half of year 2017 the portfolio diversification model b Data on risk-free securities: data on risk-free securities included The bases for choosing stocks are: (1) the optimal number of stocks solely Treasury bond with one year to maturity: Because the yield on 1-year required in constructing a diversified portfolio lies between 10 to 30; bond is calculated on a yearly basis, the author coverts back to daily basis by therefore, 24 stocks is a sufficient number; (2) these stocks meet the standard dividing yearly yield by the number of actual trading days of year For deviation condition as mentioned; (3) low level of correlation among these example, on January 1st, 2008, yield of 1-year Vietnam Treasury bond is stocks means the trading prices of stocks are highly random; and (4) these 7.85% p.a (source: Bloomberg) with no trade history in year 2007 The stocks are highly liquid throughout the research period number of actual trading days in 2007 is 248 days The daily-based yield is 2.4.3.3 calculated as: 7.85%/248 days = 0.032%/day Constructing a typical Diversified Portfolio and Examining the Performance compared to the Market For years 2008, 2016 and the first half of year 2016, the same A typical investor using the MPT pays special attention to the risks calculation method is applied In year 2008, there is a trade history of 1-year and return of the portfolio That shows in the average return rate and standard Treasury bond, so the average yield on bond in 2008 is discounted by using deviation of return All calculations in the dissertation are based on daily data Bootstrapping technique to be equal 12.67% p.a.; the number of actual trading and done with the use of Solver in Microsoft Excel days is 245 days; daily yield of Treasury bond is 12.67%/245 days = In 2007, although market return was not the highest rate, the market 0.052%/day Daily yield on bond in 2016 is 4.34%/251 days = 0.017%/day risks were the lowest (standard deviation of the VNI index) compared to other and in the first half of year 2017 is 3.92%/250 days = 0.016%/day stocks Hence, the author points out that in order to achieve low risks, 2.4.3.2 Analysis on the Standard Deviation of Expected Return investors should diversify their investment portfolios, rather than investing in and the Stock Picking for Diversified Portfolio single stock By applying portfolio diversification theory, the author can With Eview software, the author analyzes the Jarque-Bera (JB) test establish the efficient frontier when only stocks or both stocks and risk-free on standard deviation with 95% confidence interval, taking into account 24 assets appear in the model stocks that meet the stochastic condition throughout the whole research period The minimum variance portfolio (L1) was suggested in 2007 by (2007-2017) to construct a diversified portfolio The author also examines the diversifying the investment portfolio with portfolio risk at the lowest level of correlation among the chosen stocks and concludes that due to low level of 1.394% The L1 portfolio also brings in higher return relative to the VNI correlation, the trading prices of stocks are highly random, and the market market performance (return rate: 0.151% > 0.099% and risk: 1.394% < 10 Source: author’s calculation 1.716%) An efficient portfolio combines the L1 and the multiplication of a risk coefficient with L2 (totaled to 0) * In case of short seling: The capital market line is the line that connects the return on Treasury - If the portfolio only contains stocks, and the risk coefficient allowed bond (Rf) and the linear portfolio According to the CAPM and Markowitz’s is similar to that of the VNI market index, then the solution of the equation is:: theories, the capital market line is the efficient frontier in the case of free L1’*C*L1 + ∂ 2*L2’*C*L2 + 2*∂*L1’*C*L2 = (1,716%)2 trading of risk-free securities and no prohibition of short selling The graph shows the VNI index point lies below the capital market line and the efficient And coefficient vector is L1 + ∂* L2 The result shows portfolio (E1) frontier when the portfolio only contains stocks That means the with only stock has similar market risk to the case of short selling, and return diversification of investment portfolio plays the key factor in helping on the diversified portfolio is 0.546%, much higher than market return – VNI investors win the market in the case of Vietnam stocks market, however, (0.099%) The reason is by short selling devaluing stocks such as FPT, AGF, short selling is prohibited, so the author examines the efficient portfolio with TYA, THD, and so on, investors can improve the level of investment either compatible risks or similar market returns factored in as in cases of efficiency, as well as holding stocks that are gaining in value with low risk short selling and risk-free securities (Rf) such as DHG, VNM, ITA, and BCC - If the portfolio only contains stocks, the allowed risk coefficient (∂) Graph 2.1: Efficient frontier and capital market line in 2007 in efficient portfolio with similar return to that of the market is the solution of Return 3.50% the following equation: E(rL1 ) + ∂ *E(rL2 ) = 0,099% 3.00% Capital market line However, return on portfolio with minimum variance L1 (0.151%) is 2.50% still higher than return of the VNI (0.099%) Therefore, the L1 portfolio is still 2.00% chosen as an efficient portfolio (E2) with closest return to the VNI 1.50% * In case of prohibition of short selling: 1.00% Efficient frontier with only stocks The efficient portfolio with the same risk as the VNI is the solution of the optimization equation Max 0.50% 0.00% 0.00% 1.00% 2.00% 3.00% Z’*1N =1 and zi>= (i=1,N) Risk VNI 4.00% 5.00% 6.00% 7.00% 8.00% 11 Z E(RZ) with contraint Z’*C*Z = (1.716%)2, The efficient portfolio with the same return as the VNI is the solution If Treasury bond (Rf) is added to the portfolio, the coefficient that of the optimization equation: Min Z Z’*C*Z with constraint E(RZ) = 0.099%, defines w0 of Rf in efficient portfolio with similar reurn to that of the market Z’*1N =1 and zi>= (i=1,N) (VNI) is the solution of the following equation: (1-w0) * E(rT) = 0,099% W0 is the coefficient of Rf and (1- w0) * T is the coefficient of stocks Calculation In case of prohibition of short selling, the coefficients of all stock in result from E6 portfolio shows that, in case investors are allowed to join the portfolio are greater than Investors tend to maximize profit of the portfolio bond market and to short sell, they lean towards minimizing risk but keeping a on the condition that risk of the portfolio be similar to that of the market, and certain level of portfolio return similar to that of the market, meaning they in the absence of short selling (E3 portfolio), investors will lean towards will hold more of Treasury bond (significant Rf of 97.46%) in order to keep holding of stocks that are gaining value such as DHG, HAP, ITA, BCC, risk at the lowest level (risk of holding Treasury bond is zero); besides, NAV… investors will hold more of high return and low risk stocks such as REE, If investors look forward to minimizing risk of their portfolio, on the DHG, VNM, HAP, ITA, BCC, NAV and short sell devaluing stocks such as condition that return of the portfolio be similar to that of the market, and in FPT, AGF, TYA, THD… the absence of short selling (E4 portfolio), investors’ behavior will lean In case of the prohibition of short selling: efficient portfolio with towards holding of stocks that are gaining value and have low risk such as similar risk to the VNI is the solution of the optimization equation: Max DHG, ITA, PPC, RAL and so on, or holding of low risk stocks with slight Z (E(RZ) + rf*z0) with constraint Z’*C*Z = (1,716%) , Z’*1N =1 and zi>= devaluation such as AGF, THD… (i=0,N) * Diversified portfolio in case of adding Treasury bond: Efficient portfolio with similar return to the VNI is the solution of the If Treasury bond (Rf) is added to the portfolio, the coefficient that optimization equation: Min Z Z’*C*Z with constraint E(RZ)+ rf*z0 = 0.099%, defines w0 of Rf in efficient portfolio with similar risk to that of the market (VNI) is the solution of the following equation: (1- w0) Z’*1N =1 and zi>= (i=0,N) * Var(rT) = Calculation results, including both stocks and Treasury bond (E7) (1,716%)2 W0 is the coefficient of Rf and (1- w0) * T is the coefficient of with similar risk to the market in case of no short selling, shows that investors stocks Calculation result from E5 portfolio shows that investors lean towards can only hold high return and low risk stocks such as DHG, HAP, ITA, BCC, holding of high return stocks as well as adding low risk securities such as NAV, SMC in order to maximize return, as well as holding a small portion Treasury bond (zero risk), DHG, VNM, HAP, ITA and so on, on the other (1.50%) of Treasury bond to hedge for risk, keeping the level of risk of hand, investors will short sell devaluing stocks such as FPT, AGF, TYA, portfolio similar to that of the market THD… 12 Calculation result on the portfolio containing both stocks and bond 1.491%; portfolios containing both stocks and bond at the same return rate as (E8), with similar return to that of the market and in the case of prohibition of the VNI and allowed for short selling (E6): 0.167%; and portfolios containing short selling, shows that investors tend to hold Treasury bond (significant Rf both stocks and bond and not allowed for short selling (E8): 0.317% On the of 81.77%) to ensure low level of risk Besides, investors also hold more of other hand, the more restraints on the market, the more risks investors have to high return stocks and consider those with low risk such as DHG, HAP, ITA, bear in diversifying their portfolios BCC, NAV, and so on, to ensure the return on their portfolio is similar of that 2.4.3.4 Examining the Repetition and Fluctuations of Diversified of the market Portfolio during 2007-2017 * Examining the profitability of the diversified portfolio compared to The author analyzes thoroughly the results of eight diversified VN Index: a) Same risk level as the VNI: The result shows that all of the portfolios from E1 to E8 compared to the VNI (conducted in 2007) in the next efficient portfolios with the same risk level as the VNI (1.716%) have higher years: 2008, 2016, and the first half of 2017 by applying the above calculation methods Results are followed: return than the VNI (0.099%): portfolios containing only stock and allowed for short selling (E1): 0.546%; portfolios containing both stocks and bonds (i) Diversified portfolio has similar risk level to that of the VNI: and allowed for short selling (E5): 0.724%; portfolios containing only stocks - Portfolio (E1) containing only stocks with similar risk level to that and not allowed for short selling: 0.397%; and portfolios containing both of the VNI and allowed for short selling: at similar risk level to the VNI stocks and bond and not allowed for short selling (E7): 0.397% this suggests (notice the risk level of each of the stocks is higher than that of the market), investors may earn a higher return than that of the VNI at the same risk level return on portfolio is higher than that of the VNI, meaning investors can beat the market through diversifying their portfolios by diversifying their investment portfolios The result also points out that the - Portfolio (E3) containing only stocks with similar risk level to that more disadvantages and drawbacks in the market, the less the return earned by of the VNI and not allowed for short selling: investors in this case can only diversifying portfolio hold growing stocks such as: DHG, HAP, ITA, BCC in 2007; PVD, DHG, b) Same return as the VNI (0.099%): the result shows that the risk VNM, SAV in 2008; REE, SAM, VNM, RAL in 2016; and FPT, DHG, PPC, of all portfolios is lower than that of the VNI (1.716%): portfolios containing VNM in the first half of 2017 At the similar risk lvel to the market, return on only stocks at the same return rate as the VNI and allowed for short selling E3 portfolio is higher than that of the VNI, meaning despite the prohibition of (E2): 1.394% (higher return at 0.151%); portfolios containing only stocks at short selling, investors can still beat the market by flexibly adjust the the same return rate as the VNI and not allowed for short selling (E4): coefficient of stocks in the portfolio; however, return on E3 being lower than 13 that on E1 means the prohibition of short selling negatively affect the totally choose to hold 100% of Treasury bond (which earns a return of performance of the portfolio 0.052% and zero risk but fails to meet the “don’ put all eggs in the same basket” criterion) - Portfolio (E5) containing both stocks and bond with similar risk level to that of the VNI and allowed for short selling: investors’ reaction is the - Portfolio containing both stocks and bond (E7) with similar risk same as with E1; they can improve the performance of the portfolio by short level to the market and not allowed for short selling: the behavior of investors selling devaluing stocks such as: FPT, AGF, TYA, THD in 2007; GMD, is similar to that on the E3, but the coefficients of stocks are different due to PVD, STB, HAP in 2016; or PVD, BMP, GIL in the first half of 2017 the holding of Treasury bond At the similar risk level to the VNI, returns on Alternatively, investors hold greater proportion of stocks that gain value with E7 in all periods of coefficient adjustments are higher than those of the VNI less fluctuation such as DHG, VNM, ITA, BCC in 2007; or REE, SAM, Return on E7 is also higher than that on E3 but lower than that on E5 KDC, VNM in 2016; or FPT, DHG, PPC, VNM in the first half of 2017 Specifically, the comparison of returns on E7 and on E1 does not result in a clear outcome, although the performance of E1 seems to exceed E7 due to The difference among E5 and E1 and E3 is that in 2008, investors higher return on E1 than on E7 in years 2007, 2008, and 2016 and only lower only held Treasury bond and a single stock PVD This is easily explained as in the first half of 2017 the stock market in 2008 suffered a recession, and all stocks in portfolio realized tremendous losses Amongst those, however, PVD realized the (ii) Diversified portfolio has similar return to that of the VNI: smallest loss in return In order to ensure the targeted risk rate, the holding of - Portfolio E2 containing only stock with similar return to that of the PVD and Treasury bond was predictable Nevertheless, this is not the most market and allowed for short selling: at a similar return rate (even when suitable method of managing investment portfolios in terms of diversification return on E2 is higher) to that of the market, the risk level of E2 is lower than At the similar risk level to the VNI (notice the risk level of each of the that of the VNI over all periods of calculations and coefficient adjustments stocks is higher than that of the market), return on E5 is higher than that of the That shows investors can beat the market through portfolio diversification VNI in all periods, suggesting investors can beat the market through portfolio - Portfolio E4 containing only stocks with similar return to that of the diversification Furthermore, return on E5 is also higher than that on E1 and market and not allowed for short selling: E4 has similar return levels to those E3 due to the holding of Treasury bond (E1 and E3 portfolios not contain of the market; risk level of E4 is lower that that of the market after Treasury bond) and short selling option (E3 is not allowed for short selling); calculations and coefficient adjustments That shows investors can beat the the only exception was in the year 2008 where return on E5 was higher than market through portfolio diversification However, the risk level of E4 is that on E3 but lower than that on E1 due to the reason mentioned above higher than that of E2 (even when return on E2 is higher than that on E4), (recession on stock market in 2008 and the keeping of targeted risk level) In meaning the short selling of stocks can be treated as a hedging tool case the market encounters another recession similar to 2008, investors can 14 - Portfolio E6 containing both stocks and Treasury bond with similar of the diversified portfolio; and (iii) the short selling factor has unclear return to that of the market and allowed for short selling: E6 has similar influence in the model return to that of the market, while the risk level of E6 is significantly lower (b) Diversified portfolio has similar return to that of the VNI: (i) than that of the market after calculations and coefficient adjustments The risk risk levels of all diversified portfolios are lower than that of the VNI in all level of E6 is also lower than that of E2 and E4, meaning the holding of periods; (ii) risk level of E6 is the lowest, followed by E2; risk level of E4 is Treasury bond is a very effective hedging tool; investors can beat the market the highest through portfolio diversification That shows: (i) investors can definitely beat the market in terms of - Portfolio E8 containing both stocks and Treasury bond with similar risk level by managing a diversified portfolio that meets standard deviation return to that of the market and not allowed for short selling: result shows condition, has low correlations among all stocks in the portfolio, and flexibly that E8 has similar return to that of the market, while portfolio’s risk level is change the coefficient of each stock in different periods; (ii) the more limits significantly lower than that of the market after calculations and coefficient and constraints, the lower the performance (return) of the diversified portfolio; adjustments The risk level of E8 is also lower than that of E2 and E4 but and (iii) the holding of Treasury bond is a more effective hedging tool than higher than E6, meaning that the short selling of stocks and the holding of short selling Treasury bond are effective hedging tools and that investors can beat the In general, the analysis results in the dissertation are relatively diverse market through portfolio diversification from research results derived from other emerging markets that are 2.4.3.5 Conclusion and Judgment from Calculation Results summarized in Chapter 1, including Lee, Fah and Chong (2016)’s case on (a) Diversified portfolio has similar risk level to that of the VNI: Malysia; Zaimovic, Berio and Mustafic (2017) on the SEE zone… However, (i) returns on all diversified portfolios are higher than that of the market in all the summary result in the dissertation is overall similar to that of Hallinan’s periods; (ii) return on E5 is the highest, followed by that on E1 and on E7; research on emerging markets, Zhou’s research (2010) on China, as well as return on E3 is the lowest most of the research work conducted on frontier markets such as Randolph’s (2011) and Mills’ (2015) papers on African countries The result shows: (i) investors can definitely beat the market in terms of rate of return by constructing and managing a diversified stock portfolio 2.4.4 Examining Portfolio Diversification through Parametric that meets standard deviation condition, has low correlations among all stocks Method in the portfolio, and flexibly change the coefficient of each stock in different The author applies the parametric method in constructing and period; (ii) the more limits and constraints, the lower the performance (return) estimating his regression models Based on the constructed diversified portfolios and examinations in part 2.1 above, the author continues to 15 distribute the “coefficient” for each of the stocks in the portfolio in each decreases) by less than 1% In other words, profitability rates of all portfolios calculation period; hence, he calculates return on the whole diversified are smaller than that of the market in all calculating periods portfolio on a daily basis to create a daily time series data Next, the author - The estimated coefficient β of portfolio E3 always carries a positive applies the CAPM model to estimate his regression as follow: ( and the highest value in all calculating periods, suggesting that return on E3 ) fluctuates more than returns on all other portfolios and is in a direct proportion with return of the VNI On the other hand, coefficient R2 of portfolio E3 is where: always the highest value in all calculating periods, proving that the E(y): average return of portfolio: E(y)=∑_(j=1)^t▒w_j *y_j performance of E3 depends much on the fluctuations of the VNI The reason is because investors lack the tools necessary for hedging, diversifying and (E(y) is the daily average return of the portfolio, y_j is the return of improving the performance of their portfolios (investors encounter the most each stock; w_j is the coefficient of each stock in the portfolio constraints in portfolio E3) VNI: daily return of the VNI - In contrast with E3, coefficient β of portfolio E5 always carries the From there, the author estimates and examines the coefficient β Pair lowest value in all calculating periods, meaning the performance of portfolio of assumptions used in examination includes: E5 is least influenced by the fluctuations of the VNI The reason is that with H0: β = 1; E5, investors have the most freedom from any constraints and limits as well as H1: β < the tools necessary to diversify, to hedge, and to improve the performance of If Tqs < – their portfolios – k) : reject H0, accept H1 - The estimation result of coefficient β does not have a clear meaning If β = 1, then return on the portfolio fluctuates proportionally with in terms of statistics when compared between E1 (containing only stocks and return on the VNI; if β < 1, then return on the portfolio fluctuates less than allowed for short selling) and E7 (containing both stocks and Treasury bond return on the VNI; if β > 1, then return on the portfolio fluctuates more than and not allowed for short selling) return on the VNI The author also examines other statistical errors of the - The estimation result of coefficient α is always of positive in all model (ε_ti) Results are followed: portfolios, showing that in case the diversified portfolio has similar risk level (i) Diversified portfolio has similar risk level to that of the VNI: to that of the VNI, given return of the market equals 0%, and ceteris paribus, - Coefficient β < is for all portfolios in all calculating periods of the then return on the portfolio is still greater than 0% However, the estimation dissertation, meaning that given all other factors are unchanged, when return of the market increases (or decreases) by 1%, return on portfolio increases (or 16 - The estimated result of coefficient α does not have a clear meaning result does not have a clear meaning in terms of statistics when comparing all portfolios in terms of statistics, because the portfolios are calculated so that the risk level is the lowest yet returns on all portfolios are still similar to that of the market (ii) Diversified portfolio has similar return to that of the VNI: 2.4.5 Conclusion on the examination result - Coefficient β < is for all portfolios in all calculating periods, meaning given all other factors unchanged, when return of the market With all empirical analysis results, the quantification in the increases (or decreases) by 1%, then return on the portfolio will increase (or dissertation has contributed to the confirmation of the conclusions (research decrease) by less than 1% In other words, the performance of portfolios theses) derived from this research field not only in Vietnam but also in the fluctuates less than that of the market in all calculating periods world The main conclusions derived from empirical analysis in the dissertation are followed: - The estimated coefficient β of portfolio E4 always carries a positive and the highest value in all calculating periods, showing that return on E4 (1) With calculation and examination results on standard deviation fluctuates more than those of all other portfolios and is in a direct proportion and coefficients of actual data on Vietnam stock market, investors can with the VNI On the other hand, coefficient R2 of E4 is always the highest definitely select and construct a diversified portfolio (with 24 stocks) that value in all calculating periods, proving that the performance of E4 depends meets such theoretical conditions: capable of standard deviation analysis, low much on the fluctuations of the VNI coefficients, and high liquidity - In contrast with E4, the estimated coefficient β of E6 carries the (2) Based on the database of selected stock list, data on Treasury bond lowest value in all calculating periods, showing that the performance of E6 is with one year to maturity as a risk-free security, and theoretical models, with least influenced by the fluctuations of the VNI The reason is that with E6, the application of Bootstrapping method, mathematical and optimization investors have the most freedom from any constraints and limits, as well as all models, the matrix programming, and the use of Solver in Microsoft Excel, tools to diversify, to hedge, and to improve the performance of their the results show: portfolios (i) In 2007, the VNI is displayed as a point below the efficient frontier - The estimated result of coefficient β of portfolio E2 (containing only and capital market line, meaning by constructing and diversifying the stocks and allowed for short selling) is greater that of portfolio E8 (containing investment portfolio with 24 different stocks and Treasury bond, investors can both stocks and Treasury bond and not allowed for short selling); on the other definitely beat the VNI – the representative of the market containing all listed hand, coefficient R2 of E2 is also greater than that of E8, showing that return stocks Therefore, the application of portfolio diversification theory leads to on E2 fluctuates more than E8, and the performance of E2 depends more on better performance on Vietnam stock market the fluctuations of the VNI than that of E8 17 (ii) The author also researches and calculates the fluctuations of the (3) The author applies econometric model to examine the correlation diversified portfolio on a timeline basis and proves that investors can between return of the portfolio and that of the market That is, in order to definitely beat the market (in terms of high return and low risk) and are able to carry out the examination, the author applies the CAPM model to estimate and repeat the outstanding investment result by selecting, constructing, and examine the fluctuations of return rate of the diversified portfolio constructed managing a stock portfolio that meets the standard deviation condition and the based on non-parametric model Results are followed: flexible changes in coefficient of each stock by applying portfolio (i) Coefficient β < is for all of the portfolios in all calculating diversification theory in the case of Vietnam stock market periods, meaning that ceteris paribus, when return of the market increases (or The conclusions above are the significant statistical evidences, which decreases) by 1%, then return on portfolio increases (or decreases) by less allow for the answer of research questions and in the dissertation than 1% In other words, return rates of all portfolios fluctuates less than that of the market in all calculating periods (iii) The author also examines the diversified portfolios with either similar risk level or similar return to that of the VNI but different constraints This is meaningful statistical evidence and the foundation for such as: portfolio containing only stocks and not allowed for short selling; answering research question at the beginning of the dissertation portfolio containing both stocks and Treasury bond and not allowed for short (ii) The estimated coefficient β of E3 and E4 (of which investors selling; portfolio containing only stocks and allowed for short selling; and encounters the most constraints) always carries a positive and the highest portfolio free of constraints The result shows that the more constraints and value in all calculating periods, showing that returns on E3 and E4 fluctuates limits, the less the performance of diversified portfolios This insists that more than those on all other portfolios and are in direct proportion with that of constraints and limitation to the entrance to Treasury bond market and the the VNI On the other hand, coefficients R2 of E3 and E4 fluctuate always short selling option will diminish the effect of portfolio diversification carry the highest value in all calculating periods, suggesting that the (iv) The effect of short selling condition compared to the entrance of performance of E3 and E4 depends much on the fluctuations of the VNI The Treasury bond market is unclear reason is investors lack sufficient tools to hedge for risks, to diversify, and to improve investment performance (v) The entrance to Treasury bond market is a better hedging tool that (iii) In contrast with E3 and E4, the estimated coefficient β of E5 and the allowance for short selling E6 (which allow investors to hold both stocks and Treasury bond and to short Conclusions derived in points (iii), (iv), and (v) above are the sell, where E5 has similar risk level, and E6 has similar return to the market) foundation for the research answers to questions and at the beginning of always carries the lowest value in all calculating periods, showing that returns the dissertation on E5 and E6 depend the least on the fluctuations of the market The reason is 18 that with portfolios E5 and E6, investors encounter the least constraints, thus diversification, thus helps investor improve the performance of their have all necessary tools to diversify their portfolios and to hedge for risks investment portfolios (iv) The estimated result of coefficient β is unclear when comparing CHAPTER 3: POLICY IMPLICATIONS OF PORTFOLIO between portfolio E1 (containing only stocks and allowed for short selling) DIVERSIFICATION ON VIETNAM STOCK MARKET and E7 (containing both stocks and Treasury bond but not allowed for short 3.1 Direction for Portfolio Diversification on Vietnam Stock selling) Market (v) The estimated result of coefficient β of portfolio E2 (containing The Government Report No 88/TTr-BTC dated June 30th, 2017 by only stocks and allowed for short selling) is greater than that of E8 (containing Ministry of Finance setting out solutions for restructuring of the stock market both stocks and Treasury bond but not allowed for short selling); on the other and insurance for the period 2017 - 2020 and Decision No 1191/QD-TTg hand, coefficient R2 of E2 is also greater than that of E8, meaning that return dated August 14th 2017 on Treasury bond market development roadmap for on E2 fluctuates more than that of E8 when the market fluctuates and that the period 2017 – 2020 and vision until 2030 prove that the Government return on E2 depends more on the fluctuations of the market (VNI) than that continues to support portfolio diversification activities of E8 3.2 Promoting Convenience and Removing Constraints in (4) The results above have high level of application in the fund Portfolio Diversification Activities management industry and the trading of securities in Vietnam High-level The Dissertation proposes the following solutions to promote managers can refer to the models in this dissertation when managing and convenience and remove constraint in portfolio diversification activities: diversifying their investment portfolios (5) From the results above, the author provides a number of Firstly, it is necessary to identify factors favorable to portfolio recommendations on the creation of efficient business environment and on the diversification activities in order to promote the advantages while removing management of funds and securities in Vietnam, for example: (i) the constraints prohibition of short selling should be lifted and the legislators should macroeconomic environment, political and regulatory framework It is also construct a specific mechanism on the short selling of securities; (ii) market important to promote market factors to support supply such as developing makers and policy makers should allow for a clearer and more open market diversification policies and market expansion, and to support demand such as penetration in order to help investors diversify their investment portfolios; and attracting idle funds to invest in the stock market; (iii) a freer stock market will allow for more opportunities of portfolio These advantages include sustainable growth, stable Secondly, constraints on portfolio diversification activities, such as legal and operational guidelines need to be removed For market participants 19 like portfolio swap funds, open-end and closed funds, the constraints are points in order to utilize opportunities to outperform the market and transfer mainly on portfolio weight age limit and allowed types of investment assets portfolio risk to the market at an appropriate time Even though each fund sets its own terms and limits on allowed types of CONCLUSION investment assets, the main and most obvious constraint is that the funds are not allowed to short sell in Vietnam market At the same time, removing The success of investment management companies and securities constraints imposed on domestic and foreign investors in stock and Treasury companies depends on the ability to allocate, manage assets and diversify bond market and rules imposed on market participants is necessary investments Due to the important role and diversity of the market reflected in portfolio diversification, different schools of evaluation and analysis in 3.3 Proposed Policies to Promote Portfolio Diversification finance theory have built different measurement portfolio comparison The proposed policies to promote portfolio diversification activities methods However, there have been few practical application researches in are improving the regulatory and market management framework, introducing Vietnam stock market and no research has thoroughly systemized the Modern supporting policies to improve demand, attracting professional investors, Portfolio Theory in Vietnam stock market improving market grading, building credit rating regulations, setting up credit With the scientific and practical foundation in Vietnam stock market, rating agencies in Vietnam, introducing supply side policies such as the author focuses on systemizing different schools of theories in portfolio facilitating privatization of government companies and developing derivative diversification of investors, summarizes empirical researches, draws lessons products, developing collateral and short selling business, improving learned on portfolio diversification in markets similar to Vietnam (emerging monetary and fiscal policies and enhancing communication among markets and frontier markets) On the other hand, the author also examines the companies, organizations and the authority current portfolio diversification of organizations and investors in the market in 3.4 Suggestions for professional investors order to point out the achieved results, existing problems, reasons for limits, thus offering solutions to improve investment efficiency through portfolio In order to take an active part in portfolio diversification to diversification on Vietnam stock market from 2007 to 2017 outperform the market, depending on the investment strategy, risk appetite of each investment fund, professional investment managers in Vietnam stock Main achievements of the dissertation include: market ought to consider the appropriate diversification strategies However, Firstly, the author systemizes and clarifies the portfolio diversification the conclusions drawn from this dissertation are important empirical theory, theories and models relating to portfolio selection and portfolio evidences for investors to evaluate their investment and risk management diversification in emerging and frontier markets and the lessons for Vietnam; strategy In addition, analysis on coefficient beta from the CAPM model also Secondly, holding 24 stocks and Treasury bond can outperform the provides insights into market participation methods as well as entry and exit VNI, which represents the market Therefore, it can be concluded that 20 application of portfolio diversification theory does bring good results in Despite considerable efforts, there are certain limits in the dissertation Vietnam stock market; due to time limit and research method However, this is a foundation for future empirical researches in portfolio diversification in Vietnam Thirdly, the main conclusions from empirical researches are: (i) Investors can outperform the market by flexibly changing weight age of each stock through each stage; (ii) more constraints and limits in portfolio REFERENCES management decrease the efficiency of portfolio diversification; (iii) the effect Luu Tuan Linh, “Poftfolio diversification on stock market – From of short selling compared to entering the treasury bond market is not clear if the aim of investors is to outperform the market in profits However, if theory to practice in Vietnam”, Banking Science and Training investors aim to outperform the market in terms of risk, entering the Treasury Review, Vol 147, Aug 2014 Luu Tuan Linh, “Some solutions to improve Treasury bond market”, bond market is a better risk hedging tool compared to short selling; Financial Market Journal, Vol 16(409), Aug 2014 Fourthly, results of empirical researches in CAPM model show that: (i) coefficient β < for all categories in all stages of estimation, which means profitability of all categories fluctuates more slowly than profitability of the market in all phases; (ii) coefficient β fluctuates widely in different scenarios where different levels of constraints and limits are applied to the portfolio (with or without treasury bond, short selling allowed or not allowed); Based on the analysis, evaluation and summarization, the author has proposed policies for portfolio diversification on Vietnam stock market Especially, he focuses on directions to develop portfolio diversification on Vietnam stock market, facilitating and removing constraints in portfolio diversification, proposed policies to promote portfolio diversification such as improving the regulatory framework, enhancing management and supervising capabilities and demand side policies, attracting professional investors, improving supply side policies and coordinating monetary, fiscal and other macro policies 21 ... diversification on Vietnam stock market The data selection ensures the 2.4.1.3 Conditions on the Examination of Portfolio Diversification representation of different phases of the market (market boom... diversification on Vietnam stock market Especially, he focuses on directions to develop portfolio diversification on Vietnam stock market, facilitating and removing constraints in portfolio diversification,... diversify their investment portfolios in Vietnam market stock market mentioned above, this dissertation focuses on systemizing all during 2007-2017 period theories on investment diversification, as well