کارایی بازار در بازارهای سهام نو ظهور: یک مطالعه موردی در بازار بورس ویتنام Market efficiency in emerging stock markets: A case study of the Vietnamese stock market

I. Introduction Stock market efficiency has been of great interest of many researchers in the last decades. While there is a school of thought stating that stock market is efficient, another claims that it is insufficient (Mobarek et al. 2008). The efficient market hypothesis (EMH), however, has a vital part in modern financial literature. As a result, for a sufficient market, Magnusson and Wydick (2002) state that movements in such market need to be characterized by a random walk based on current available information. Many researchers have been studying stock market efficiency as once a country’s market is found not following a random walk it might be insufficient (Sui Suyin 2007). The efficient market hypothesis assumes that all available information fully reflected in stock prices at any point of time is the best estimate of the real value of the stocks (Malkiel and Fama 1970). EMH depends on the following three conditions: (1) no transaction cost, (2) public and free information, and (3) current stock prices reflect all available information. Malkiel and Fama (1970), however, argues that infringement of those conditions does not necessarily imply the insufficiency of the market due to competitive environment. Based on the identification of a set of available information, EMH is categorized into three degree namely weak-form efficiency, semi-strong form efficiency and strong form efficiency. Regarding the available information in the market, each level holds a different viewpoint on market efficiency. Weak-form efficiency states that future stock prices cannot be predicted by analysis of information of past prices because such information has already been reflected in the current prices (Fama 1991). This also shows that technical analysis does not hold prediction value as it employs historical prices, volumes and open interest to predict stock prices (Park and Irwin 2004). Semi-strong form efficiency holds for a certain market if all available information is publicly reflected by current market prices. Finally, strong form efficiency claims that stock prices reflect all public and private information. Accordingly it is impossible to use internal information, fundamental analysis and technical analysis to earn excess returns in such market. In the actual stock market, most of the investors do not believe that market is completely efficient; hence, they try to do better than the market by identifying stocks which can gain returns and are willing to take additional risks. Different schools of thought try to better the market at various levels of risk (Singhvi 2001). The efficient market hypothesis has been applied in studying both developed and emerging stock markets. While much of the researches have been made in developed stock markets, it is widely accepted that there is a need to focus more on the emerging ones (Mobarek et al. 2008). In emerging stock markets, experimental studies mainly focus on the lowest form of EMH which is weak form efficiency. If evidences found cannot support weak form market efficiency, they then support higher forms of EMH which are semistrong and strong form efficiency (Wong and Kwong 1984). The Vietnamese stock market with its main representative Hochiminh Stock Exchange (HOSE) is one of emerging stock markets. The first transaction of HOSE started on July 28th 2000 with only two companies listed are Saigon Cable and Telecommunication Material Joint Stock Company (SAM) and Refrigeration Electrical Engineering Joint Stock Company (REE). Over a short period of time, the Vietnamese stock market has significantly been increasing in the quantity of the companies listed, market capitalization and trade volume. On the other hand, it has gone through many fluctuations; the Vietnamese stock index (VN-Index) reached its peak in March 2007 but then declined. After this point of time, there was a rapid decline in the investors’ trust in the Vietnamese stock market. The market has just started gaining back investors’ trust since the middle of 2009 (Figure 1). As a result, it is necessary to study the efficiency of the Vietnamese stock market since its foundation. This research aims at investigating if the Vietnamese stock market (particularly HOSE) is weak-form efficient, a popular efficiency form in emerging stock markets. Results achieved from this research are expected to improve the value of current financial model. For this purpose, we will employ autocorrelation test, runs test and variance ratio test, using VN-Index data collected from the first trading session is July 28th 2000 to July 28th 2013. The next parts of this paper are developed as follows. Part 2 briefly reviews previous experimental studies on weak-form efficiency in emerging stock markets. Part 3 describes data and develops hypothesis and approach. Part 4 discusses the experimental results of the study. Finally part 5 draws the conclusions.