An Analysis of Free Float, Liquidity, and Stock Price in Viet Nam- The Case of Free Float Adjusted VN30 versus the unadjusted VNINDEX
Abstract
The focus of this research is on the effect of free-float in Vietnam‘s stock
market in-order to examine its effect on stock price. We adopt an empirical analysis
to show statistical evidence that low free-float is a major factors driving the stock market liquidity, in particular the liquidity of the VN-Index.
In addition, when comparing with the new market index, VN30 Index, we can draw the following conclusions:
The low free float does affect the stock price and stock liquidity,
VN30 Index—an index of large cap—out-performed the VN Index not because of being free-float adjusted; but due to VN Index negative correlation with the small-capitalization and mid-capitalization.
Our recommendations are:
The free-float adjusted indices are better reflect of the stock market
We can practically replicate and trade VN30. It is virtually, impossible to replicate VN-Index in real-life