Application of Fama French five-factor asset pricing model to industrial companies in Vietnam stock market: Bachelor thesis of Banking and Finance / Phạm Hoàng Ngọc Anh ; Supervisor

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

BACHELOR THESIS

Major: Financial - Banking

Topic:

APPLICATION OF FAMA FRENCH FIVE-FACTOR

ASSET PRICING MODEL TO INDUSTRIAL COMPANIES

IN VIETNAM STOCK MARKET

Student’s name : Ph m Ho ng Ng c nh

Student’s ID : 030630141945

Guiding teacher : MSc Nguy n Minh Nh t

HCMC, December 2018

i

ABSTRACT

The research has focused on one of the most important model for asset pricing which

create variety of selections for investors who interested in ways to examine the return.

The author choose the Fama French five-factor model and conduct each factor to

measure 100 listed industrial companies from January 2012 to December 2017 in

Vietnam stock market. To make sure the regression test are strong explainable, the

author also test on Gibbons et al. (1989) GRS-F test whether all the sorted portfolios

can actually demonstrate positively by the sample. The results show that MRP (market

factor) factor plays an important role to all portfolios and SMB factors has positive

significant than other threes, CMA factor may redundant in this test. Fama French

five-factor variables can explain the time-series average return of these companies

and cause no pricing error.

Keywords: Fama French five-factor, asset pricing model; market capitalization; book￾to-market equity; profitability; investment; industrial companies

ii

DECLARATION OF AUTHENTICITY

I honestly confirm that I am the sole author of the written these here enclosed and I

have organized it in my own words.

With my signature, I confirm that I have documented all methods, data and processes

sincerely. I have mentioned all people who were significant facilitators of the work.

I declare that all statements and information contained here are true, correct and

accurate to the best of my knowledge.

Ho Chi Minh City, December 24th, 2018

iii

ACKNOWLEGEMENTS

Firstly, I would like to express my gratitude and respect towards MSc Nguyen Minh

Nhat for his patience, understanding and considerate support to provide me with useful

recommendations and guidance in the progress of this study.

Secondly, I would like to thank my family for their support throughout my four years

in Banking University. And I would like to specially express gratefulness to family

who supported to encourage before through my journey doing Bachelor program.

Finally, best regards to my lecturers, my friends and BUH for their sharing and support

throughout my Bachelor program.

Ho Chi Minh City, December 24th, 2018

iv

LIST OF ABBREVIATIONS

HSX Ho Chi Minh Stock Exchange

HNX Ha Noi Stock Exchange

CAPM Capital Asset Pricing Model

APT Arbitrage Pricing Theory

MPT Modern Portfolio Theory

SMB Small Minus Big

MRP Market Risk Premium

RMW Robust Minus Weak

CMA Conservative Minus Aggressive

FF5F Fama French 5 factors

OLS Ordinary Least Square

VIF Variance Inflation Factor

v

LIST OF TABLES

Name of tables Page

Table 1: Research framework 27

Table 2: Number of stocks in filtering stages 31

Table 3: Size and B/M bivariate sorting 34

Table 4: Size and Investment bivariate sorting 34

Table 5: Size and Profitability bivariate sorting 34

Table 6: Construction of size, BE/ME, profitability and

investment factors

35

Table 7: Stationary test results regarding level values of

variables

39

Table 8: Cross correlations matrix of 5 independent

factors

40

Table 9: Variance inflation factor test to 5 factors 41

Table 10: FF5F Model regression results (January

2012‑ January 2018)

43

Table 11: Statistics for model performance 46

vi

Table of Contents

ABSTRACT................................................................................................................... i

DECLARATION OF AUTHENTICITY................................................................... ii

ACKNOWLEGEMENTS .......................................................................................... iii

LIST OF ABBREVIATIONS .................................................................................... iv

LIST OF TABLES ........................................................................................................v

CHAPTER 1: INTRODUCTION............................................................................ viii

1.1 REASON TO RESEARCH .................................................................................................. viii

1.2 RESEARCH GOAL .................................................................................................................. x

1.3 RESEARCH QUESTIONS ..................................................................................................... x

1.4 RESEARCH SUBJECT AND RANGE............................................................................... x

1.5 METHODLOGY....................................................................................................................... xi

1.6 RESEARCH CONTRIBUTION ........................................................................................... xi

1.7 RESEARCH OUTLINE......................................................................................................... xii

CHAPTER 2: LITERATURE REVIEW AND PREVIOUS RESEARCHES.... xiv

2.1 Literature review...................................................................................................................... xiv

2.1.1 Review about industrial companies................................................................... xiv

2 1 2 Harry Markowitz‘s theory (MPT)...................................................................... xiv

2.1.3 CAPM (Capital Asset Pricing Model)............................................................... xvi

2.1.4 APT (Arbitrage Pricing Theory)...................................................................... xviii

2.1.5 The Fama French three-factor model...................................................................xx

2.1.6 Carhart four-factor model ................................................................................ xxiii

2.1.7 The Fama French five-factor model ................................................................ xxiv

2.2 Previous researches................................................................................................................xxvi

2.2.1 Previous reseaches from developed countries................................................. xxvi

2.2.2 Previous researches in developing countries................................................. xxviii

2.2.3 Previous research in Vietnam .......................................................................... xxix

2.3 Research gap............................................................................................................................xxxi

CHAPTER 3: DATA AND METHODOLOGY ................................................ xxxiii

3.1 Data construction and processing method .....................................................................xxxiii

3.1.1 Data sources................................................................................................... xxxiii