Market Efficiency Hypothesis in Emerging Stock Markets: An Analysis of Vietnamese Stock Market over the Period of 2013-2021 and the Prominence of Herd Behavior in Inefficient Periods

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School of Business | Bachelor's thesis
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(Mikkeli) Bachelor’s Program in International Business
43 + 5
Objectives The main objectives of this study are to test the random walk hypothesis of the Vietnamese stock market and to identify herding behavior within the market. The sub-period chosen is from 2013 to 2021, after the formative years of the market and into the market growth stage. Thus, this study gives an insight into the performance of the market and its investors’ psychology. Moreover, it seeks to provide investors and managers with updated knowledge and implications to invest in the market most suitably. Summary To test for the behavior of the Vietnamese stock market, this research collects daily returns of the market index VN-Index over the period from 2 Jan 2013 to 31 December 2021 as well as the returns of individual stocks over the examined period. The portfolio used for individual stocks is adjusted according to the VN30 basket, which consists of the largest market capitalizing tickers in trading on the HOSE. The autocorrelation and runs tests are conducted to examine if the market follows a random walk hypothesis. The cross-sectional absolute deviation test by Chang et al. (2000) is employed to detect herding behavior in the market. The findings are discussed with regards to previous literature and acknowledged limitations of this paper. Conclusions This thesis rejects the presence of a random walk and the absence of herding in the Vietnamese stock market over the period from 2 Jan 2013 to 31 December 2021. This means that the market is weak-form inefficient and characterized by herding behavior of investors. However, this research also presents conflicting results that might suggest an improvement towards market efficiency.
Thesis advisor
Inci, A. Can
Vietnamese stock market, market efficiency hypothesis, herding, finance, autocorrelation test, runs test, CSAD, cross-sectional absolute deviation
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