The relationship between stock market return and foreign investment in Vietnam stock market: Evidence from Ho Chi Minh stock exchange (HOSE)
Abstract
This research determines the two-way relationship between stock market return and foreign investment into stock market in Vietnam, in specific case of Ho Chi Minh Stock Exchange (HOSE) from 2007 to the mid of 2005. Based on empirical researches in different countries, this research applies regression analysis in VAR model and Granger-Causality test to achieve the objective in determining the effect of stock market return on foreign investment into stock market and vice versa. As the result, in general there is no causality effect of market return on foreign investment into stock market. It does not illustrate the strong contribution the application of portfolio theory and capital theory in case of Vietnam stock market; due to the characteristics of the market make foreign investors do not totally focus on past returns to decide portfolio investment. Besides that, the research has found no significant effect of foreign investment into stock market on market return. It is consistent with price-pressure theory in terms of outperformance of stock in short-term and no effects in the long-term after the adjustment in price of market. Moreover, finding of no impact of macroeconomic factors to the flow of foreign investment into stock market, as well as the performance of the market, is the signal to consider the effectiveness of policies towards Vietnam stock market. In conclusion, this research will help policy-makers, financial institutions and investors have deep understanding about the flow of foreign investment into Vietnam stock market and the overall performance of stock market since 2007.