The relation between stock liquidity, foreign investor trading and firm value, 2021

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY OF HO CHI MINH CITY

NGUYỄN HUỲNH TUYẾT TRINH

THE RELATION BETWEEN STOCK LIQUIDITY,

FOREIGN INVESTOR TRADING AND FIRM VALUE

BACHELOR THESIS

MAJOR: FINANCIAL – BANKING

NUMBER: 7340201

SUPERVISOR: PH.D LƯU THU QUANG

Ho Chi Minh City, September 2021

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY OF HO CHI MINH CITY

NGUYỄN HUỲNH TUYẾT TRINH

THE RELATION BETWEEN STOCK LIQUIDITY,

FOREIGN INVESTOR TRADING AND FIRM VALUE

BACHELOR THESIS

MAJOR: FINANCIAL – BANKING

NUMBER: 52340201

SUPERVISOR: PH.D LƯU THU QUANG

Ho Chi Minh City, September 2021

i

ABSTRACT

The paper uses one of the most important asset pricing models for stock investors.

Applying the Fama-French three factors model, and adding considerable factors to be

mentioned when investing: firm value factor, stock liquidity factor and foreign

trading volume factor. The author considers the influence of these factors when added

to the Fama-French model on the return of stocks in portfolios, considering the

relationship of the newly added factors to the factors available in the model and the

factors themselves. In addition, the author examines the influence of the above factors

on portfolios built when combined by other methods. This thesis uses measurement

data of non-financial companies listed on Ho Chi Minh Stock Exchange (HOSE),

from January 2015 to December 2019.

ii

DECLARATION OF AUTHENTICITY

This thesis is the author’s own research work. The research results are valid and right,

there is no previously published or third-party content except for the complete source

I have mentioned in the reference of the in this paper.

Ho Chi Minh City, September 2021

iii

ACKNOWLEDGEMENT

I would like to express my gratitude and respect towards PhD Luu Thu Quang for his

patience, understanding and considerate support to provide me with useful

recommendations and guidance in the progress of this thesis.

Ho Chi Minh City, September 2021

TABLE OF CONTENTS

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

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

ACKNOWLEDGEMENT...................................................................................... iii

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

1.1. Reason to research ............................................................................................1

1.2. Research objective ............................................................................................2

1.3. Research questions............................................................................................3

1.4. Research subject and range...............................................................................3

1.5. Methodology.....................................................................................................3

1.6. Research outline................................................................................................3

CHAPTER 2: LITERATURE REVIEW................................................................5

2.1. Definition.......................................................................................................5

2.1.1. Liquidity..................................................................................................5

2.1.2. Firm value ...............................................................................................5

2.1.3. Foreign portfolio investment ..................................................................6

2.1.4. Investment portfolio................................................................................7

2.1.5. Rate of return ..........................................................................................8

2.2. Theoretical basis............................................................................................8

2.2.1. Liquidity in stock market........................................................................8

2.2.2. The relationship between stock liquidity and firm value .....................10

2.2.3. The relationship between foreign investments and stock liquidity ......12

2.2.4. CAPM model ........................................................................................13

2.2.5. Fama - French Three Factors model.....................................................14

2.3. Overview of previous empirical researches ................................................16

2.3.1. Previous foreign empirical researches..................................................16

2.3.2. Previous empirical researches in Vietnam............................................20

CHAPTER 3: METHODOLOGY OF RESEARCH...........................................24

3.1. Research process..........................................................................................24

3.2. Research model............................................................................................24

3.3. Data of research ...........................................................................................25

3.4. Measurement of variables............................................................................28

3.5. Description of research data ........................................................................31

3.6. Testing method ............................................................................................32

CHAPTER 4: EMPIRICAL RESULTS ...............................................................35

4.1. Descriptive statistics....................................................................................35

4.2. Correlation matrix........................................................................................36

4.3. Regression analysis result............................................................................36

4.3.1. Result of tests........................................................................................36

4.3.2. Regression details.................................................................................39

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS .........................46

5.1. Summary of main research results and conclusions....................................46

5.2. Recommendations .......................................................................................48

5.3. Research limitations and future research directions....................................50

REFERENCE ..........................................................................................................52

APPENDIX ..............................................................................................................57

LIST OF ABBREVIATION

Abbreviation Meaning

IPO Initial Public Offering

M&A Mergers and Acquisitions

OLS Ordinary Least Squares

FPI Foreign Portfolio Investment

EPS Earning per shares

FDI Foreign Direct Investment

CAPM Capital asset Pricing Model

P/E Price to earnings

ME/BE Market value to book value ratio

MC Market Capitalization