Luận văn thạc sĩ UEH can investment strategies beat the market

UNIVERSITY OF ECONOMICS

HO CHI MINH CITY

VIETNAM

INSTITUTE OF SOCIAL STUDIES

THE HAGUE

NETHERLANDS

VIETNAM – NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

CAN INVESTMENT STRATEGIES BEAT THE

MARKET?

By

HUYNH NHAT TRINH

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

Ho Chi Minh City, August 2016

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i

ABSTRACT

Over the past three decades, many anomalies, known as investment strategies, have

been documented on the global financial markets. However, from 2000s to now, several

scholars have shown considerable changes in the magnitude of these excess returns.

Therefore, the purpose of this thesis is to examine whether these investment strategies can be

applied in Vietnam stock market or not. In addition, this thesis also provides the explanation

of difference in returns.

By processing the data set containing of 689 listed firms in Ho Chi Minh Stock

Exchange (HOSE) and Ha Noi Stock Exchange (HNX) during the period 2006 to 2014, this

thesis examines three investment strategies including value investing, momentum investing

and size investing. The evidences in Vietnam stock market confirms the existences of

statistically value premium and size premium during the normal economic condition. During

the financial crisis period, the results also confirm the value and size premium but they are

not significant in the statistical point of view. In term of momentum investment strategy, it

cannot be applied in reality when the results shown that the existences of momentum

premium are not clear during the normal economic condition and financial crisis period.

Traditional risk based measures are also examined to find the explanation of

anomalies. The results indicated that volatility can be used to explain the excess return but in

term of beta, it cannot be used. The behavioral arguments are not covered in this thesis, so

that an implication for future research refers towards the under and over-reaction in the value

investment strategy, the size investment strategy, and the momentum investment strategy.

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ii

ACKNOWLEDGEMENT

First of all, I would like to express my utmost acknowledgement and appreciation

towards my supervisor – Dr Ngo Minh Hai – for all the motivation, patience and support he

has given me to complete this thesis. This thesis would not have been completed without his

support. He supported me when I was struggling with my thesis in order to get me on the

right way again and to improve it.

Besides, I would like to thank my family, especially my Mom, Dad and my girlfriend

for the continuous support they have given me throughout my time in business school. I could

not have done it without them.

Last but not least, it has been a long and fun learning process and I would like to

thank my fellow graduate students at K20 for a memorable semester. Thanks to teachers and

staffs in Vietnam – Netherlands Programme for their help during my process.

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iii

ABBREVIATIONS

AMEX American Stock Exchange

BV/MV Book value over market value ratio

CAPM Capital Asset Pricing Model

CF/P Cash flow to price

D/P Dividend to price

E/P Earning per share to price

EPS Earnings per share

FYE Fiscal year end

GNP Gross National Product

HML High Minus Low

HNX Ha Noi Stock Exchange

HOSE Ho Chi Minh Stock Exchange

HPR Holding period return

LIBOR London Interbank Offered Rate

NASDAQ National Association of Securities Dealers Automated Quatations

NYSE New York Stock Exchange

P/B Price to book value

P/E Price over earning per share

U.K United Kingdom

U.S United State

WRSS Weighted relative strength strategy

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iv

TABLE OF CONTENTS

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

ACKNOWLEDGEMENT.............................................................................................................. ii

ABBREVIATIONS .......................................................................................................................iii

TABLE OF CONTENTS............................................................................................................... iv

LIST OF TABLES......................................................................................................................... vi

CHAPTER 1: INTRODUCTION................................................................................................... 8

1.1. Problem Statement ..........................................................Error! Bookmark not defined.

1.2. Research Questions.........................................................Error! Bookmark not defined.

1.3. Thesis Outline .................................................................Error! Bookmark not defined.

CHAPTER 2: LITERATURE REVIEW.....................................Error! Bookmark not defined.0

2.1. Momentum Investment Strategy And Its Explanation..Error! Bookmark not defined.0

2.1.1. International Evidence of Momentum Premium....Error! Bookmark not defined.0

2.1.2. Explanations of Momentum Strategy ....................Error! Bookmark not defined.4

2.2. Value Investment Strategy and Its Explanation ............Error! Bookmark not defined.7

2.2.1. International Evidence of Value Premium.............Error! Bookmark not defined.7

2.2.2. Explanations of Value Strategy .............................2Error! Bookmark not defined.

2.3. Size Investment Strategy and Its Explanation................................................................ 23

2.3.1. Size Effect and Its Explanations............................Error! Bookmark not defined.3

2.3.2. Variations of Size Effect........................................Error! Bookmark not defined.4

2.3.3. Concentration of size effect in the smallest firms..Error! Bookmark not defined.7

CHAPTER 3: DATA AND METHODOLOGY ...........................Error! Bookmark not defined.

3.1. Data Source ...................................................................Error! Bookmark not defined.8

3.2. Methodology .................................................................Error! Bookmark not defined.9

3.2.1. Value Investment Strategy.....................................Error! Bookmark not defined.9

3.2.2. Momentum Investment Strategy............................................................................. 32

3.2.3. Size Investment Strategy......................................................................................... 36

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