Luận văn thạc sĩ UEH relationship between trading volume and stock return in viet nam

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

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ĐỖ NGỌC HOÀNG YẾN

RELATIONSHIP BETWEEN TRADING

VOLUME AND STOCK RETURN IN

VIETNAM’S STOCK MARKET

Major : FINANCE – BANKING

Code : 60.31.12

MASTER THESIS

Instructor: Dr HỒ VIẾT TIẾN

HO CHI MINH CITY, SEPTEMBER 2011

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i

ABSTRACT

This thesis investigated the relationship between return and trading volume in the

Vietnam’s stock market in the context of Granger causality test and GARCH model

test. The sample, including two market indices and thirty seven largest market

capitalization listed companies during the period since they firstly traded through July

2011, was used. The dynamic relation as marked by lead –lag relationship from return

to volume was confirmed at both market level and firm level. I also found the

evidences supported the interaction between two exchanges in Vietnam. When testing

the mixture distribution hypothesis, the results indicated that volume was not a good

proxy for information arrival in the stock market due to the persistence of volatility

remained in most of the cases. This finding was similar to other emerging markets

which less agreed with the mixture distribution hypothesis.

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CONTENTS

Abstract......................................................................................................i

Contents ...................................................................................................ii

List of Tables ...........................................................................................iv

Chapter 1: Introduction

1.1 Introduction ..........................................................................................1

1.2 Research background............................................................................1

1.3 Problem statement ................................................................................3

1.4 Research objectives and questions .......................................................4

1.5 Research methodology and scope .........................................................5

1.6 Thesis structure.....................................................................................5

Chapter 2: Literature Review

2.1 Theoretical background ........................................................................7

2.2 Empirical studies

2.2.1 Studies on volume- price change relation...........................................9

2.2.2 Studies on volume- volatility relation..............................................11

Chapter 3: Research Methodology

3.1 Hypotheses.........................................................................................15

3.2 Data Description.................................................................................15

3.2 Econometric Methodology

3.2.1 Stationary and Unit Root test ..........................................................16

3.2.2 Cointegration .................................................................................17

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3.2.3 Granger Causality tests ...................................................................19

3.2.4 ARCH models .................................................................................21

3.2.5 GARCH models .............................................................................23

3.2.6 Threshold GARCH models.............................................................23

Chapter 4. Empirical results

4.1 Market level analysis

4.1.1 Descriptive statistic for markets......................................................25

4.1.2 Unit root test and Granger causality test..........................................26

4.1.3 GARCH(1,1) test and TGARCH (1,1) test......................................27

4.2 Firm level analysis

4.2.1 Descriptive statistic..........................................................................29

4.2 .2Granger causality test ......................................................................30

4.2.3 Restricted and unrestricted GARCH(1,1), TGARCH (1,1) test ........33

Chapter 5. Conclusion and Implication

5.1 Main findings .....................................................................................35

5.2 Implications........................................................................................35

References..............................................................................................37

Appendix 1 ..............................................................................................41

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LIST OF TABLE

Table 4. 1 Descriptive statistics of two market indices..............................25

Table 4. 2 Stationary test for market indices.............................................26

Table 4. 3 Cointegration test (Unit root test for residuals).........................26

Table 4. 4 Granger causality test at market level.......................................27

Table 4. 5 ARCH effect test for indices ....................................................28

Table 4. 6 GARCH (1,1) model and TGARCH (1,1) model for indices....29

Table 4.7 Granger causality test at firm level...........................................31

Table 4.8 ARCH effect test for firms.......................................................33

Table A1 Descriptive statistics of firms....................................................41

Table A2 Unit root test for return and volume of firms............................43

Table A3 Cointegration test at firm level .................................................44

Table A4 GARCH (1,1) model with and without volume for firms..........45

Table A5 TGARCH(1,1) model with and without volume for firms ........47

Table A6 List of 37 sample firms with their symbol ............................... 48

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