Investigating the validity of beta in Vietnam stock exchange
Abstract
This study determined the beta meaning in Vietnam Stock market with the total observation is 125 companies chosen from Ho Chi Minh Stock exchange (HOSE). The conceptual framework is developed for investigating the beta stability in Vietnam Stock Exchange through adopting 2 concepts which has been proved and made it wrong when using historical beta. The first one is time varying beta. The second one is historical beta depends much on which historical period and which return intervals (daily, weekly, monthly, annually…) that are used to calculate beta. To test the hypotheses, regression analysis, T-tests, Z-test and heteroscedasticity test are utilized under Microsoft Excel. The research results are quite interesting when beta is time varying in both short – long and different interval returns. However, the exploring testing gives the incidence on the average that 92% of stocks having stable beta and the difference between different criteria calculated beta is not significant or it against the first results that beta is significant time varying. In the other hand, another check of explanatory power of beta to the expected return was found so tremendous small, there is over 90% of adjusted R square of 3,000 calculated betas is smaller than 0.05
This meaning that beta cannot capture the expected return and the systematic risk or market risk has no effect on the expected return. This result is totally debate the traditional theory in stock market. However, it is consistent with recent researches’ results in both developed and developing finance market of the idiosyncratic risk – the unsystematic risk and normally is unobservable that really affect expected return, however in the “the low risk anomaly” situation.
This study will bring another vision for finance researchers and investors in using beta as a measure of systematic risk, contribute to literature about beta in emerging market. Finally, this research also proposes recommendations for further researches.
Keywords: Beta stability, time varying, systematic risk, expected return.