Factors affecting the stock prices in vietnam

INTRODUCTION The urgency of the research subject Vietnam's Securities market has strongly developed in both width and depth; after nearly 20 years of establishment and operation, the Stock market has grown strongly to become a new investment channel which is mobilizing mid and long term capital to supplement resources for the economy besides credits from banks Thus, the Securities market plays an important role in the financial system in each country During the past few years, the size of the Securities market, the liquidity and the number of investors participating in the market have continuously increased, which shows this is one of the investment channels attracting public attention Besides, the development of the Securities market has served and supported for restructuring the economy, renewing the growth model and stabilizing the macroeconomy In detail, the most important step is to promote equitization; reorganize and renew state-owned enterprises Along with supporting to restructure the banking system and improving the financial system thanks to the development of the Securities market In the market, the stock price is a factor that investors specially pay attention to when making investment decisions In recent years, the factors affecting stock prices have been a topic which is specially concerned by many financial researchers because of its important implications So, what are the factors impacting stock prices in Vietnam's Securities market and how is their impact level going on; if these problems were clarified, it would have helped investors be more favorable in terms of approach, capture information, analyze and forecast On that basis, investors can make a better choice in creating an appropriate investment portfolio Being aware of this core issue in Vietnam is quite important but, at present, no one has studied a comprehensive, methodical method because most of the authors only researched price fluctuations based on each separate industry group Therefore, with the desire to find out the factors affecting stock prices across the Vietnamese market, I decided to choose the topic “Factors affecting the Stock prices in Vietnam” Research Objectives & Research mission 2.1 Research objectives The purpose of the thesis is to help investors have more information and a more strategic view when analyzing and forecasting changes in stock prices, as a basis for effective portfolio allocation based on factors affecting stock price in the Vietnam market in the future 2.2 Research mission Collecting accurate data from official and reliable information channels to assess and analyze the problem to find out the factors affecting Vietnam's stock prices Recommend some issues related to the Securities market and stock prices Research object and research scope 3.1 Research object The object of the thesis is the factors affecting stock prices in the Vietnam Stock market in general and on Ho Chi Minh Stock exchanges in particular 3.2 Research scope  In term of space: The study is based on VN-Index of Ho Chi Minh Stock Exchange and macro data  In terms of time: Although the Vietnam Stock market began to form in 1998, and by 2000, the Ho Chi Minh Stock Exchange was officially put into operation, but the market capitalization only more or less than 1% of GDP, there was not much change until 2005 But starting in 2006, when the Securities Law was enacted by the National Assembly and officially took effect in early 2007, gradually improved the inadequacies and conflicts With other legal documents, helping the Vietnam Stock market be more integrated with international and regional capital markets Vietnam's stock market becomes safer and more transparent, increasing the ability of management and supervision for state management agencies Therefore, due to the characteristics of the research data, the data of the thesis was taken between 2006 and 2018 Research methods Based on the research, collecting relevant information materials, during the thesis implementation, using the methods of synthesis, comparison, statistics, analysis, and regression modeling to clarify the content of the topic To solve the research mission, during the study and implementation of the topic, the author used the following methods: ▪ Inheritance method: Considering studied documents with clear and reliable sources ▪ Statistical method: Collecting data through securities finance channels such as Vndirect, World Bank, etc., thereby summarizing and calculating to serve the analysis and evaluation of factors affecting stock prices on the market With the synthesis method, the author has resented the theoretical basis of stocks and the factors affecting stock prices ▪ Quantitative method: Based on some optimal models in the world, the author created a model of factors affecting Vietnam's stock prices After that, select the data to run the regression model as well as calculate, measure, check the correlation between variables, etc., by using econometric models, mathematical models through the software such as Eviews 8, Excel 2010 to identify factors that have a strong impact on stock prices At the same time, this method has answered the question which is the main factor affecting the volatility of Vietnam's stock prices in the past Structure of the thesis The content of the graduation thesis consists of three chapters as follows: Chapter 1: Theoretical about factors affecting the stock prices Chapter 2: Factors affecting the stock prices in Vietnam Chapter 3: Recommendations and Conclusion CHAPTER 1: THEORETICAL ABOUT FACTORS AFFECTING THE STOCK PRICES 1.1 Definitions 1.1.1 Securities market 1.1.1.1 The concept of Securities market Stock market or Securities market is an important part of the capital market, its activities to mobilize small savings in society and focused on large longterm funding for companies, business organizations, and the government to develop production, economic growth, or investment projects The Securities market is a place where activities of buying and selling securities are taking place This trade is conducted in the primary market when the buyer buys securities for the first time from the issuers and in the secondary market when there is a resale of securities issued in the primary market Hence, the Securities market is where securities are issued and exchanged Goods traded on the Securities market are stocks, bonds, and several other financial instruments with a term of less than year which are goods of the money market The Stock market has the following main characteristics: ▪ The Securities market is characterized by direct financial forms, people needing capital, and people who can provide capital directly participate in the market, there are no financial intermediaries between them ▪ The Securities market is a market close to the perfectly competitive market Everyone is free to participate in the market There is no imposition of prices on the Securities market, but the prices here are based on the supply and demand relationship of the market and reflect securities-related information ▪ The Securities market is basically continuous market After the securities are issued on the primary market it can be traded many times on the secondary market The Securities market ensures investors can convert the securities they hold into cash whenever they want 1.1.1.2 Stock market classification Depending on the purpose of the research, the structure of the stock market can be classified according to many different criteria Based on the characteristics of the stock market, the market is classified into categories: commodity, capital turnover, and organized form  Classification by commodity: According to commodities traded in the market, one can classify the stock market into a bond market, a stock market, a derivatives market The bond market is the market in which goods are traded there Bonds are debt instruments that are issued by issuers of loans in the form of repaying both principal and interest The stock market is the place for buying, selling, exchanging papers certifying the contribution of shareholders Shareholders are the owners of the company and must be responsible for their contribution The derivatives market is a market where derivatives are bought and sold Typical for these instruments are futures, options, stock options …  Classification by capital turnover: The market is classified into primary market and secondary market The primary market is the market for issuing securities or the first place to buy and sell securities In this market, the price of a security is the issuing price The stock exchange in the primary market increases capital for issuers Characteristics of the primary market: The primary market is the only place x 1.1.2 Security The strong development of the economy increased demand for capital, especially long-term capital To meet the capital needs, businesses and the state have issued debt certificates to borrow money from the public, which is called bonds On the other hand, with the advent of joint-stock companies, stocks were born, are a means of raising capital contribution to the company This is a certificate confirming the ownership of the Company in proportion to its capital contribution to the Company A stockholder has partial ownership of the Company, meaning that the Company will share both its profits and risks Bonds and stocks are evidence that individuals have invested money in the form of direct loans or capital contribution to the joint-stock company and also proof giving people certain rights which is the basic right to income Therefore, bonds and stocks are both called securities Today, in addition to stocks and bonds are the two main types of securities, along with the development of the market economy, many new types of securities have appeared Securities are evidence confirming the lawful rights and interests of the owner over assets or capital of the issuing organization Securities are presented in the form of certificates, book entries, or electronic data Securities include types of stocks, bonds, investment fund certificates, derivatives We can see that the securities represent a certain amount of money that investors have advanced and the basic thing is that it gives the stockholders the right to certain future earnings Therefore, securities can be traded and circulated as commodities 1.1.3 Stock The history of the stock is linked to the history of forming a joint-stock company In other words, the stock is a private product of a joint-stock company When a company is established, the charter capital is divided into equal parts called shares The buyer of shares is called a shareholder A shareholder is issued a certificate of ownership called a stock Stock means a certificate of ownership of a shareholder in a joint-stock company The ownership of shareholders in the company corresponds to the number of shares held by shareholders Therefore, stocks are also known as equity securities Normally in countries when considering the stock of a joint-stock company, there is a distinction between the authorized stock, issued stock, treasury stock, and outstanding stock  Authorized stock When a joint-stock company is established, it is allowed to issue stocks to raise capital But the laws require the company to register the total number of stocks of the company and that it must be stated in the company's charter The number of stocks allowed to be issued is the maximum number of shares that a company can issue from the beginning of its establishment as well as during its operation If there is a need to change the number of stocks permitted to be issued, it must be approved by the majority of shareholders and must change the company's charter  Issued stock Issued stock is the number of shares the company has issued to investors, it is smaller or maximum equal to the number of shares allowed to be issued Treasury stock  Treasury stock is stocks issued by the company but for certain reasons, the company pays to buy back some stocks of its own company These stocks may be retained by the company for a later time and then sold again, but in other countries, the law stipulates that the shares that the company has bought must not be sold but canceled The company's acquisition of shares of its own company must comply with the provisions of law Treasury shares are not outstanding shares, have no capital, and therefore cannot participate in the dividend distribution and have no right to vote Outstanding stock  Outstanding stock is the number of shares issued to the public and held by shareholders The number of outstanding shares is determined as follows: Outstanding stock = Issued stock- Treasury stock In case the company has both common and preferred stocks, one will be specific to each one The number of common stock in circulation is an important basis for distributing dividends in the company Based on the form of stock, we can distinguish between registered and anonymous shares Based on the benefits the stock gives to its holders, it is possible to distinguish between common stock and preferred stock This is the most common classification When it comes to the stock of a company, people often refer to common stock and preferred stock 1.1.4 Price 1.1.4.1 Concept of price Price is the monetary value of a unit of goods, services, assets or factor inputs In some markets, prices are completely determined by the market or the supply and demand forces (for instance, perfectly competitive market) In other markets (for example, monopoly markets), large suppliers have a significant impact on market prices In some cases, prices can be regulated or regulated by the government with the tools of price and income policy 1.1.4.2 Factors affecting the formation and movement of prices Factors affecting the formation and Value of the goods Usage value of goods Monetary Supply Demand Supply-Demand relationship The impact of economic policies Chart 1.1.4.2: Factors affecting the formation and movement of prices 1.1.5 Stock prices Types of stock prices:  Present share price Based on annual dividends and discount rates to determine the current price of the stock  Par value shares Par value of common shares: Par value, also called nominal value, is the value that a joint-stock company assigns to stock and is stated on the stock 10 So we have a new model when removing GDP and INF variables is: SPi= β1 + β2PEi+ β5 INRi+ β6 EXRi + ui (3) Estimating the regression model (3) by Eviews 8, the results are as follows: Figure 2.2.4.2b: Estimated results of model (3) using Eviews software 2.2.4 Errors of the model 2.2.4.1 Autocorrelation Using Durbin- Waston test (first-order) to detect the autocorrelation Based on the results of Figure 2.2.3.2b which is estimated that eviews of the model (3), we have: Hypothesis testing: { From OLS regression consequence: d (Durbin-Watson stat) = 1.140367 For α = n = 52 k= k =3 40 => dL ≈1.421 and dU ≈1.674 (Look up Durbin-Watson table) => d ∈ (0; dL) So with significance level of 5%, the model (3) have positive autocorrelation 2.2.4.2 Heteroskedasticity Heteroskedasticity test is utilized to detect whether heteroskedasticity exists in the estimation or not Given the data, we estimate (3) and obtain the residuals, ei We then run the following (auxiliary) regression: ei2 = m1 + m2.PE2i + m3 INR2i + m4.EXR2i + ui Hypothesis testing: { 41 Figure 5.2.4.2: The result of White Heteroskedasticity Test (no cross term) using Eviews software Looking at the figure 2.2.4.2, p-value= 0.8055 > α=0.05 Conclusion: Heteroskedasticity no exist in the model (3) 2.2.4.3 Ramsey’s RESET I will test for omitted variables using the Ramsey RESET test To test the Hypothesis: 42 Figure 6.2.4.3: The result of Ramsey RESET test using Eviews software From the figure 2.2.4.3 above, p-value (F-statistic) = 0.0209 < α=0.05 => Reject Ho, which means that the model (3) is omitted variables To overcome this error, we need to find out more variables which are affecting the stock prices on the Vietnam market However, due to the limited time, the author might not find new factors 43 2.2.5 Descriptive statistics Figure 7.2.5: The result of Descriptive statistics using Eviews software With new model (3), we can calculate the statistical values above such as, mean, maximum, minium … of each variable by using Eviews 44 CHAPTER 3: RECOMMENDATIONS AND CONCLUSION 3.1 Research results From the research results of the model, it can be seen that factors affecting the Stock prices in Viet Nam are Price to earnings ratio, Interest rates and Exchange rates Also, there are no relationship between GDP, Inflation rates and Stock prices in Viet Nam The research result showed that the Beta of P/E has a positive and significant effect on the VNIndex price refers to the data processing result, so the formulated hypothesis is suitable with the result of this research These results are the same as the study by Uddin, Zahidur Rahman and their co-worker (2013) It is suitable for Vietnam market and for the world stock market too, because P/E ratio is the financial ratio used to assess the relationship between the current market price of a stock and the income per share ratio, therefore, if the price increases, the stock price will increase and vice versa This result has the same with research conducted by Mehr-un-Nisa and Nishat (2012), Liu, Ming-Hua and Keshab Shrestha (2008), Eita and Joel Hinaunye (2012), Aurangzeb (2012), Macmillan and Humpe (2007), Alam and Uddin (2009) who said that interest rate has a negative and significant impact on the stock price Because, in Viet Nam, I think it is suitable for this argured that If the stock market is ineffective and the bank increase interest rates for depositors, people will transfer capital from the stock market to the bank This will lead to a reduction in demand for stocks and stock prices will fall and vice versa Besides, when the interest rates and lending rates increase, leading to investment in the economy decrease, and a decline in stock prices and vice versa The results of the regression analysis show that the USD / VND exchange rate is positively correlated with the stock price at a statistical significance of 5% 45 This result is consistent with the studies of Eita (2012), Aurangzeb (2012), Phan Thi Bich Nguyet, and Pham Duong Phuong Thao ( 2013) Specifically, when the USD/VND exchange rate increased by 1%, the stock price increased by VND 0.00698 This relationship can be explained by the increase in the USD/VND exchange rate, which will encourage more indirect investment flows into Vietnam This means that the demand for shares in the market increases so the stock price will increase In addition, the result of this research contrary to the research conducted by Mehr-un-Nisa and Nishat (2012) and Eita and Joel Hinaunye (2012) who stated that there is an impact of GDP on stock prices Also, the inflation rate also has no impact significantly toward stock pricing which contrary to the theory proposed by Al- Qenae, Carmen Li, Rashid, and Bob Wearing (2002), Mehr-un-Nisa and Nishat (2012), Liu, Ming-Hua and Keshab Shrestha (2008), Eita and Joel Hinaunye (2012) who stated that stock prices are negatively correlated with inflation rates 3.2 Recommendations 3.2.1 Lower interest rates Lower interest rates are expected to help motivate businesses This will help maintain and improve manufacturing industry growth Lower the interest rate may create better investors' psychology but it is not enough to create a sustainable uptrend for the stock market Along with the move of the SBV, commercial banks need to sharply lower lending rates and deposit rates Listed businesses can enjoy lower interest rates and thus reduce financial costs The decline in deposit interest rates will also stimulate a part of people to move deposits to other investment fields In which, the stock market is holding a great advantage in the quiet real estate market 46 3.2.2 Exchange rate stability Over the past few years, Vietnam has taken quite the right steps in implementing the exchange rate policy, contributing significantly to the achievements of the stock market growth and economic stability However, when practices change so quickly now, no policy can exist forever without inadequacies Besides, the exchange rate has the same effect as the stock price, so for the stock price to be stable, it is necessary to have policies to maintain stability and exchange rate growth Firstly, increase foreign currency reserves for the State Bank This is one of the important solutions contributing to the adjustment of the foreign exchange market However, the intervention here is not an administrative order, fixed directly on the exchange rate but it is carried out based on the SBV selling or buying foreign currencies, using the exchange stabilization reserve fund If the supply of foreign currencies is greater than that demand, the State Bank of Vietnam will launch VND to buy foreign currencies to increase the reserves of foreign currencies sold to keep the exchange rate Secondly, well handle the relationship between interest rates and exchange rates There is a close relationship between the interest rate and the exchange rate so the SBV can intervene in regulating the exchange rate through the interest rate policy When the domestic currency depreciates, the SBV may raise interest rates An increase in interest rates makes the expected return in the local currency higher Foreign capital and foreign currencies will flow into our country, reducing the tension of foreign currency scarcity, the domestic currency is unlikely to decrease However, it is not advisable to isolate the exchange rate and interest rate policies but they should be combined smoothly To protect the devaluation of the local currency, the central bank's increase in interest rates will cause investment to decline, the cost to pay is slow growth and high unemployment 47 Thirdly, use uniformly monetary policy instruments and other tools and measures to support the stability of the foreign exchange market, reasonable exchange rates, consistent with macroeconomic developments, domestic and foreign financial and monetary markets Fourthly, it is necessary to allow commercial banks to be allowed to trade foreign currencies, trade, and buy two-way foreign currencies normally with all transaction needs (as piloted at EXIMBANK) On that basis, along with the widening of the exchange rate band, it creates a smooth and continuous exchange market including spot, swap, and forward markets An exchange market with a variety of types and trading instruments will increase the ability to balance supply and demand, limit speculation and hold foreign currencies to create confidence in the public and investors about the ability to market access Finally, for businesses, increase the exchange rate is beneficial for exporters and limiting trade deficit, while also reducing inflation pressures However, in the short term will cause some difficulties for businesses, such as investment decisions will have to take into account foreign exchange risks, especially import and export businesses Therefore, to minimize these risks, businesses need to coordinate with commercial banks to implement derivative tools such as forward contracts, futures, and swaps It is also important to note that exchange rate fluctuations are often larger than changes in interest rates, so it is important to reduce the cost of hedging foreign exchange risk in the short term In the long term, businesses need to focus on the real economic effects of currency conversion and the need to develop a foreign exchange risk management strategy, along with strategies such as marketing, production, and appropriate financial management to deal with the economic effects of currency exchange rate fluctuations Because the exchange rate fluctuation entails a change in the price of the product affecting the competitiveness of 48 the company Therefore, the management needs to adjust the production process and marketing plan to create a new price correlation to ensure longterm profitability Companies can prevent foreign currency revenue-based risks, but on the contrary, competition risks, this problem stems from the longterm competition with companies that rely on other currencies, difficult to quantify, and cannot be resolved through simple prevention techniques 3.2.3 Other suggestion Monetary policy should coordinate with fiscal policy in promoting the development of Vietnam's stock market The ultimate goal of monetary policy is monetary stability, while the goal of monetary policy is to achieve a transparent budget policy, create output stability, improve resource allocation, and control the influence of distribution These two policies have a close relationship, mutual ties, and impact on the economy and financial market system If fiscal management is weak, it will increase the expectation of inflation, possibly increasing interest rates and money supply, which greatly affects the Government's debt on the stock market In contrast, high inflation and interest rates not only reduced the government's revenue but also made the stock prices fluctuate sharply in a downward trend, discouraging investors in the market due to the liquidity of the market affected Therefore, it is necessary to have a correct and complete understanding of the relationship between the two policies, to enhance their connection and reduce conflicts between them to achieve the set goals 3.3 Conclusion In general, creating an Econometric model to find the impacts on the change of the stock prices of some elements for the period 2006 to 2018 in Vietnam is the objective of this project The investigation was done through a review of the relevant theoretical and empirical literature The data was collected 49 from some trustworthy sources and extended in 12 years I used the Eviews Software to determine the correct model by taking a number of tests The research results show that stock prices are affected by macroeconomic factors include: Price-to-Earnings ratio, Interest rate and Exchange rate The optimal model is: SPi= β1 + β2PEi+ β5 INRi+ β6 EXRi + ui (3) The influence of Price-to-Earnings ratio factor, and the exchage rate are the same direction of fluctuation with VNIndex but the interest rate have the opposite effect on that In which, the main factor determining VNIndex price is Price to earnings ratio P / E is the biggest factor affecting stock price with 40,184 units Meanwhile, INR and EXR accounted for -13.999 units and 0.0729 units, respectively.Moreover, after testing errors of the model, we can see that the model is omitted variables (Ramsey Regression Equation Specification Error Test) This study gives investors a better understanding of the importance of factors affecting Vietnam's Securities market prices If I can afford to further research on the factors that influence stock prices, I will expand the sample size and add more factors to increase the accuracy of the study 50 LIMITATIONS OF THE STUDY Sample size Although the Vietnam stock market has been in operation for more than 20 years, due to some objective reasons, the author only updates data and information quarterly from 2006 to 2018, equivalent to 52 samples collected, not large enough to be analyzed correctly For example, in 2020, the whole world and Vietnam are facing an economic crisis caused by the COVID-19 pandemic, negatively affecting the stock market, and stocks continually decline, causing losses and bewilderment for investors For example, there were sessions when VNIndex lost nearly 56 points (6.28%) From the beginning of the year to the end of March 20, VN-Index lost more than 26%, decreased to 709.73 (DAS, 2020) If more data of these years are obtained, it is possible to give more authentic results about the partial impact of macro factors that the project is studying Therefore, if the sample size is further extended, the author will have closer conclusions about the impact as well as trends and meaningful relationships among the factors Lack of prior research studies on the topic The Vietnam stock market is increasingly attracting many investors to choose and care about, so the analysis of stock price movements is necessary But at present, there are few in-depth kinds of research on this topic in Vietnam Most of them have been analyzed for each industry, such as banking, food, or real estate, and there has been no research on the entire Vietnamese stock market or individual exchanges with all listed stocks This is a limitation that the author encounters when researching the topic in the lack of prior experiments for a comprehensive reference 51 The measure used to collect the data After completing the study and interpreting the results, the author found that the data collection method limited the ability to thoroughly analyze the results and could not use it as a practical tool that helpful for investors Because the data is based on VNIndex, which is the general index for the whole Ho Chi Minh exchange stock, so this research paper is for reference only, it cannot be applied to each company, each symbol on the stock market Fluency in a language The subject of using English is the second language of the author, so it is inevitable that this paper has been encountered errors such as grammar, vocabulary, or using unsuitable context Impacts of objective causes The thesis has achieved its objectives and requirements to find out factors affecting stock prices in Vietnam Stock Market, but there are still objective factors affecting the research Currently, there exist some negative activities such as price-makers or "price drivers", they buy and sell; create virtual supply and demand to increase stock liquidity Even as issue organizations, they may have tacit agreements with "price drivers" and have insider information that is not public For example, some stocks, in terms of company size as well as revenue are very good, but the stock market is not good, sometimes looking at the price lists, we can see that stock has low matching which is only about 10 stocks, or even no stock matching, the liquidity of that stock is very low On the contrary, there are some stocks that when looking at the company is not good, but because there is a "price driver" doing negative activities that push prices up or down in a very short time, that stock has very high liquidity, sometimes matching orders to millions of shares Every year, there are some violators are sanctioned by the authorities, but in reality, it is 52 difficult to eliminate this issue because of the profits it brings The "price drivers" like making the price for some stocks such as APL, MKV, AMV, DHT, AAA Because of negative objective reasons, investors should not just look at the factors or use this topic in an absolute way, that is only useful for reference On that basis, investors should have an objective view, more complete, and must consider many different aspects to make the best investment strategy for themselves Due to the wide scope of the research, limited time, the subject of the above limitations is inevitable, this will be an opportunity in the future to be able to continue additional research and overcome limitations as well as changing research methods and gathering appropriate data to be able to study a complete topic 53 SUGGESTIONS FOR FURTHER RESEARCH This next study explored factors affecting the stock prices in Viet Nam with the case using all the stock symbols It will focus on the fluctuations of each stock price on the Ho Chi Minh Stock exchange, expand the sample size, extend the time as well as use new research methods to help the research topic more in-depth and comprehensive The topic will add many new factors such as money supply, oil price, gold price… to see the dependence and the impact level on the stock price From there, it is possible to create a tool such as analytical software to help investors approach and capture the quick and accurate price movement of each type of stock on the trading floor 54 ... and stock prices Research object and research scope 3.1 Research object The object of the thesis is the factors affecting stock prices in the Vietnam Stock market in general and on Ho Chi Minh Stock. .. 1: Theoretical about factors affecting the stock prices Chapter 2: Factors affecting the stock prices in Vietnam Chapter 3: Recommendations and Conclusion CHAPTER 1: THEORETICAL ABOUT FACTORS AFFECTING. .. method has answered the question which is the main factor affecting the volatility of Vietnam' s stock prices in the past Structure of the thesis The content of the graduation thesis consists of