Foreign ownership and stock return volatility – Evidence from Vietnam

Foreign ownership and stock return volatility – Evidence from Vietnam

Accepted Manuscript Title: Foreign ownership and stock return volatility - Evidence from Vietnam Author: Xuan Vinh Vo PII: DOI: Reference: S1042-444X...

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Accepted Manuscript Title: Foreign ownership and stock return volatility - Evidence from Vietnam Author: Xuan Vinh Vo PII: DOI: Reference:

S1042-444X(15)00022-5 http://dx.doi.org/doi:10.1016/j.mulfin.2015.03.004 MULFIN 473

To appear in:

J. of Multi. Fin. Manag.

Received date: Revised date: Accepted date:

28-8-2014 26-3-2015 27-3-2015

Please cite this article as: Vo, X.V.,Foreign ownership and stock return volatility - Evidence from Vietnam, Journal of Multinational Financial Management (2015), http://dx.doi.org/10.1016/j.mulfin.2015.03.004 This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its final form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.

1) Title Page (WITH Author Details)

Foreign ownership and stock return volatility - Evidence from Vietnam Xuan Vinh Vo

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CFVG Ho Chi Minh City, Vietnam

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School of Banking – University of Economics Ho Chi Minh City, Vietnam

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Email: [email protected]

Abstract

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This paper examines the effects of foreign ownership on the firm-level volatility of stock returns

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in Vietnam. We use a detailed panel data set of firms listed on the Ho Chi Minh City stock

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exchange for the period from 2006 to 2012. Employing different econometric estimation techniques for panel data analysis, our empirical results show that firm ownership by foreign

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investors decreases firm stock price volatility in Vietnam stock market. The result implies the stabilizing role of foreign investors in emerging stock markets and this can be considered as one of the potential benefits of increasing the exposure of domestic stock markets to foreign investors.

JEL Classification: G32, G35

Keywords: Foreign Investors; Volatility; Ownership; Vietnam

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*2) Blinded Manuscript (WITHOUT Author Details)

Foreign ownership and stock return volatility - Evidence from Vietnam

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Abstract

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This paper examines the effects of foreign ownership on the firm-level volatility of stock returns in Vietnam. We use a detailed panel data set of firms listed on the Ho Chi Minh City stock

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exchange for the period from 2006 to 2012. Employing different econometric estimation techniques for panel data analysis, our empirical results show that firm ownership by foreign

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investors decreases firm stock price volatility in Vietnam stock market. The result implies the

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stabilizing role of foreign investors in emerging stock markets and this can be considered as one of the potential benefits of increasing the exposure of domestic stock markets to foreign

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JEL Classification: G32, G35

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investors.

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Keywords: Foreign Investors; Volatility; Ownership; Vietnam

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1. Introduction Stock market volatility is an important issue in equity markets worldwide which attracts huge

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interest from both researchers and investors. Most of emerging equity markets are normally characterized by high price volatility since there exist various uncertainties with an unexpected

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market crash resulting from a crisis, either political or financial. Higher stock price volatility and its effects on investors in emerging markets are evidenced in times of crisis such as the Asian

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financial crisis in 1997 and the recent global financial crisis in 2008. Therefore, examining the

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stock price volatility in emerging stock markets is an interesting topic on its own merit. This study investigates the impacts of foreign investor ownership on the firm level stock return

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volatility in Vietnam, an emerging market. Similar to many emerging markets, Vietnam equity market is small and fragile to even small shocks. Stock price volatility is a serious matter of

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concern for all market participants and policy makers as volatility can exert huge pressure on the

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economy. Since the Asian Financial Crisis in 1997, there is a lingering concern that foreign

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capital may cause extreme volatility in emerging markets resulting in significant losses for these fragile economies (Bekaert & Harvey 2000). This volatile issue can be more severe for Vietnam as the financial market is still in the infant stage of development. The current paper has strong policy implications. Firstly, this paper sheds light on the volatility effects of foreign portfolio investment in Vietnam. A thorough understanding of this relationship is important for policy setting. The understanding of stock market volatility is more important in the context of a small open economy like Vietnam as the stock market is much more vulnerable to a small shock in the global market. Secondly, this papers equip many stakeholders with the information to deal with the current discussion on whether to increase the ownership room for

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foreign investors in a company from the current legal maximum level of 49% ownership in any listed non-financial firms. Thirdly, the paper provides an analysis for the policy makers in the setting of recent trend of removing legal restrictions on cross border capital flows and foreign

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direct investments among emerging markets.

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Since early 2000s, there has been an increase in the presence of foreign investors in most of emerging markets as a results of financial liberalization and globalization. The removal of cross

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border restrictions and domestic capital market liberalization makes international investment

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easier. In many emerging countries, foreign direct investments and foreign portfolio investments are considered to be the sources of economic growth. Benefits attained from opening domestic

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financial markets to foreign investors are well documented in the literature theoretically and empirically (Boyd & Smith 1996; Dachs & Peters 2014; Gallizo et al. 2015; Levine & Zervos

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1996; Rajan & Zingales 1998). In addition, foreign investors gradually become an important

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players in emerging stock markets (Elliott & Zhou 2015). The increase in the numbers of foreign

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investors and traded volume in the stock market worldwide has sparked strong interest amongst financial economists and policy makers in investigating the impacts on stock price volatility. Even though the reform process is far from over, the economic reform and the financial system reform has yield significant results. Recent developments in Vietnam financial market and the continuous restructure of regulatory bodies and financial institutions have been seen recently by international financial investors. Important features of the reform in financial sectors include a better and stronger supervisory body with effective monitoring tools to achieve the stability and sustainability of financial system; a prudent financial liberalization with effective capacity to identify and mitigate risks; and a development of financial standard. As a results of globalization and liberalization trend in financial system, there is an increased presence of foreign investors in 3 Page 4 of 23

the local financial market. This increased presence of foreign investors is further supported by more open policies. For example, foreign banks are now allowed to set up branches and wholly owned subsidiaries in Vietnam and foreign portfolio investors can invest in Vietnamese firms

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with lower transaction costs.

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Stock market is established in Vietnam in early 2000s and have gradually become an important channel for firms to raise fund to finance their investments. Even though banks are still the main

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sources of finance for Vietnamese firms, the Vietnam stock market has grown rapidly during the

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last two decades in terms of the number of listed firms and market capitalization. From a limited number of four listed firms at the establishment, there are currently more than 700 listed

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companies in the two official stock exchanges and many more in the over the counter market. The presence of foreign investors is expected to bring many benefits including providing

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liquidity and stock price stabilization for the stock market. Foreign investment in Vietnamese

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firms is also considered an alternative source of finance for firms. Moreover, large foreign

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ownership is expected to provide better corporate governance and transparency improvement in Vietnamese firms.

The remainder of the paper is organized as follows. Section 2 provides a review of literature investigating the impact of foreign ownership on stock return volatility. Section 3 introduces data and research methodology. Section 4 presents empirical results. Section 5 concludes the paper. 2. Literature Review Studies in the current literature provide mixed results of the foreign ownership impacts on the stock price volatility. On the one hand, many papers argue that foreign investors help to reduce risks in firms that they invest in and hence, stock price volatility (Li et al. 2011; Umutlu et al. 4 Page 5 of 23

2010). The increased presence of foreign investors in emerging stock markets improves risk controls and reduces the risk exposure of listed firms (Cronqvist & Fahlenbrach 2009; Doidge et al. 2004; Ferreira & Matos 2008; Mitton 2006; Umutlu et al. 2010; Wang & Xie 2009). Foreign

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investors have preference to invest in well established firms and this should further accelerate better corporate governance practice (Chari et al. 2006; Kelley & Woidtke 2006; Leuz et al.

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2010; Rossi & Volpin 2004; Stulz 1999). Moreover, foreign investors could improve quality of

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information in local stock markets, provide better corporate control and reporting standard, enhance the corporate governance environments and thus significantly reduce transaction costs,

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informational costs and risk exposure. This in turn results in lower volatility of stock returns.

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He et al. (2013) suggest two potential channels through which foreign ownership could affect stock price volatility of the invested firms. Firstly, foreign investors tends to have stronger

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incentive and better capability to collect and process value-relevant information for their trading.

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A number of papers provide evidence that foreign investors possess better information than local

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investors for their trading (Froot & Ramadorai 2001; Grinblatt & Keloharju 2000). This informed trading could facilitate the capitalization of fundamentals into stock price (Admati & Pfleiderer 2009; Edmans 2009; Edmans & Manso 2011) and improve stock price volatility. Secondly, foreign investors could enhance corporate governance and quality of disclosure of the invested firms (Fan & Wong 2002; Gul et al. 2010; Jin & Myers 2006; Morck et al. 2000; Morck 1996; Shleifer & Vishny 1989).

On the other hand, many authors document a positive impact between foreign ownership and stock market volatility. They argue that the increased foreign capital in domestic stock markets may produce higher risk exposure to international market risks and result in fragility of the local market. This problem is worse in the case of immature financial institutions and regulatory 5 Page 6 of 23

bodies of emerging markets. Moreover, foreign portfolio capital could destabilize local stock markets due to the short term speculative characteristics (Bae et al. 2004; Stiglitz 1999, 2000). The short term specific investment strategy of foreign investment makes stock prices move away

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from fundamentals and thereby induce stock return autocorrelation and increase stock return volatility (Bohl & Brzeszczyński 2006). Foreign speculative capital is also considered as a major

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cause of financial crises (Stiglitz 1999, 2000). Another issue is the sensitive movement of the

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foreign capital due to even small changes in the domestic economy, exacerbating the shocks and

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causing the local stock markets more volatile (Kim & Singal 2000).

In addition, other authors report no impact of foreign ownership on stock market volatility

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(Bekaert & Harvey 1997; De Santis & Imrohoroǧlu 1997; Kim & Singal 2000). The contrasting evidence is the motivation for further research on this topic. Investigating and understanding the

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impacts of foreign investor ownership on stock return volatility in emerging stock markets is

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Hypothesis

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therefore important for related stakeholders.

In lieu of the recent literature on the relationship between foreign ownership and stock price volatility and the investment strategy of foreign investors in Vietnam stock market, the hypothesis is setting as follows: An increase in the level of foreign ownership is associated with a decrease in the firm stock return volatility. 3. Data and Methodology We attempt to shed additional light on this debate by studying a sample of about all non-financial firms listed on the Ho Chi Minh City stock exchange for the period from 2006 to 2012. Our data cover a considerable time frame given the specific nature of the stock market development in 6 Page 7 of 23

Vietnam. In addition, we examine more carefully the potential endogeneity problems as documented by Kang and Stulz (1997) and Li et al. (2011). The use of different estimation

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methods allows us to provide a robust result which is permitted by our panel data sample.

Similar to Chen et al. (2013), our model is set up as follows:

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Model

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VOLi,t = c + β1*FOREIGNi,t + β2*SIZEi,t + β3*LEVi,t + β4*MTBi,t + β5* TURNOVERi,t + εi,t

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where VOL is the annual volatility measures. As the main purpose of the paper is to investigate whether increase in foreign ownership in firms has any impact on stock price volatility, the

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construction of stock price volatility indicators is of great importance. Our volatility measures are constructed similar to Chen et al. (2013) and consistent with Bae et al. (2004) and Li et al.

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(2011). Using daily stock prices in the Ho Chi Minh City stock exchange for the period from

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2006 to 2012, we calculate daily returns as the difference in natural logarithm of the stock prices

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adjusted for dividends. Annual volatilities of firms are constructed as follows.



where returni,k is the daily return of stock i in day k, n is the number of trading days for stock i in a year, MEANi,t is the annual average of stock returns in year t of firm i.

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Foreign aggregate ownership (FOREIGN) represents the proportion of total shareholdings by foreign investors in one particular firm’s total number of shares, including foreign institutional

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ownership and foreign individual ownership. Control variables

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Our control variables are selected based on the common potential stock return volatility effects.

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We follow the literature in recognizing that the stock return volatility is driven by firm characteristics, namely firm size, firm debts to assets ratio and firm growth expectation. SIZE is

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the logarithm of the firm total assets at the end of the fiscal year. LEV is the ratio of long-term liability to total equity at the end of the fiscal year. MTB is the market to book ratio, calculated

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as the stock price divided by the book value per share of the firm at year end. TURNOVER is the annual average number of shares traded in a day divided by the number of shares outstanding

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Data

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during the year and this variable is a proxy for the market growth expectation of stock.

Our data sample includes firms listed on the Ho Chi Minh City stock exchange with the following criteria: firms must be listed and remain listed during the period of research. Our data do not include financial companies, banks and insurance companies due to their differences in business nature. Accounting data are collected from financial statements of listed firms on the Ho Chi Minh City stock exchange. Market data are provided by the Ho Chi Minh City stock exchange corporation. There are 268 firms each year in our final data sample for the period of study ranging from 2006 through 2012. Our data sample is covering most of the listed firms in the Ho Chi Minh City stock exchange over an extended time frame given the early stage of development of the Vietnamese stock market. 8 Page 9 of 23

Table 1 below presents the description of data in our analysis. On average, the level of foreign investor ownership in Vietnamese firms is 12.29% with the maximum value of 49% (legal limit). The first volatility measure has the mean value of -6.4008 and its standard deviation of 0.7124

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while the second volatility measure has the mean value of 0.0311, the maximum is 0.2899 while

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the minimum is 0.0069 indicating a significant variability in volatility of Vietnamese firm stocks.

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Correlation amongst variables

Table 2 presents correlation coefficients amongst variables in our analysis. At first glance it can

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be seen that stock price volatility is negatively correlated with foreign ownership and this suggests that foreign ownership helps to stabilize the stock price. Stock price volatility is also

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and market to book value ratio.

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negatively correlated with the firm size and positively correlated with the debts to total assets

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The correlation coefficients between foreign ownership variable and other variables in the table also hint some characteristics of the foreign investor preference for Vietnamese firms. Foreign investors prefer to invest in firms with larger size and high growth rate. Foreign investors tend to avoid firms with higher leverage ratio. This is consistent with other previous studies suggesting that foreign investors tend to have preferences for firms with specific attributes in order to avoid informational asymmetry.

4. Results and Discussion of Results

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The models are firstly estimated using least squared regression estimator. In addition, we employ both fixed effects and random effects panel estimator to analyze the data. Even though the results are consistent for impacts of the increased foreign ownership on stock return volatility, the

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Hausman tests suggest the preference for fixed effects estimation in our data set. To conserve space, we only report the fixed effects estimation results as it is recommended by the Hausman

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test results.

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Table 3 reports the regression results of panel data estimation where the dependent variable is

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VOL1. In all regressions, the coefficients for foreign ownership variables are negatively and significantly correlated with stock return volatility variables (at the 1% level). We therefore can

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conclude that foreign investors make the stock of the invested firms becoming less volatile when they increase their holdings in local firms. The results also provide some further information

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about the firm level stock return volatility of Vietnamese firms. The coefficients of firm size are

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negative and significant in all regressions. The negative relationship suggests that stock prices of

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larger firms are less risky. All of the coefficients for firm financial leverage variables are positive and significant. This indicates that if firms is financed with more debt, the stock prices will be more volatile. The interest rate for business loan in Vietnam during the research period is considerably high as the Vietnamese government applies strict monetary policy to curb inflation. The high interest rate makes firms with more debts are considered more risky and thus more volatile stock returns. The coefficients for market to book variables are negative and significant in all regressions. This implies that the higher the market value of the stock, the lower the volatility of stock return.

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Table 4 reports the regression results when the dependent variable is VOL2. The impact of

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foreign ownership on stock return volatility is consistent with the result in table 3. Foreign ownership is negatively and significantly correlated with stock return volatility in all regressions.

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The similar negative correlation between foreign ownership and stock return volatility in table 3

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and table 4 indicates that our results are quite robust.

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As another robustness test, we run the regression again in first difference forms. The dependent

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variable is now the change of stock price volatility as a measure of risk of returns. The independent variables include the differences in explanatory variables and the differences in

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control variables. According to Chen et al. (2013), unlike the model where the variables are in

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level forms, the first difference form specification of the model takes into account time invariant

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firm attributes, which are unobservable and could be determining factors for both firm stock price volatility and foreign ownership. This technique allows the modeling the variations of these first differences over time to provide a more reliable conclusion in the case of our data set. The results are provides in table 5. The results support the finding that foreign investors help to lower stock price volatility as the coefficients for volatility is negative and significant in all regressions.

To address the potential endogeneity issue, we employ the dynamic GMM estimation of Arellano & Bond (1991) and Holtz-Eakin et al. (1988) to investigate the dynamic relationship between foreign ownership and stock price volatility. This method is recommended for our data set which has the characteristics of large cross-section and short time series. 11 Page 12 of 23

Table 6 presents the estimation results. The results confirm that foreign ownership is negatively and significantly correlated with stock price volatility. In addition, the size effect on stock price volatility is clearly evidenced in all regressions. On the other hand, stocks with higher market to

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book ratio are more volatile than stock with smaller one and this is consistent with the norm that

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growth stocks are more volatile.

In order to test for the validity of the instruments, we employ the Sargan test to test for the over-

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identify restrictions in the GMM estimation. The J-statistics provided in table 6 suggest that the

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models is valid and do not suffer from over-identifying problems.

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5. Conclusion

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As a result of globalization and the removal of restrictions on cross border capital flow, there is

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an increased presence of foreign investors participating in emerging stock markets. Understanding the role of foreign investors is a key matter for the successful implementation of

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any related policy. The current paper investigates the impact of foreign ownership on stock return volatility in Vietnam stock market employing a panel data set including both the firm characteristics and market data over the period from 2006 to 2012. Using an assorted techniques for panel data estimations and correcting for potential endogeneity problems, we find the evidence that an increase in the level of foreign ownership reduces the firm stock return volatility. Our results of negative foreign ownership – stock return volatility relationship are robust to controlling for endogeneity problems. The stabilizing effect of foreign investors documented in this paper is similar to results of previous studies in other markets (Wang 2013).

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The results of this paper are particularly important for research on foreign ownership in emerging markets and firm level stock return volatility. The paper provides firm level evidence to confirm the benefits of foreign investors in emerging markets. Our result seems to be supported by the

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fact that foreign investors in Vietnam are long run investors with the buy and hold investment strategy. In addition, the finding from the paper suggests that foreign investors in Vietnam are

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beneficial to the economy not only for their contribution to the invested firms but also for the

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stabilizing effect benefits in macroeconomic perspectives.

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The paper also has clear policy implications for government. Firstly, it provides an empirical investigation to clarify the role of foreign investor participation. It clearly suggests more foreign

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ownership in firms reduces the firm stock return volatility and hence less volatile domestic stock markets in emerging countries. Secondly, a clear understanding of the stock market volatility

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effects of foreign ownership is important for policy makers in making relevant policies on

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foreign capital restrictions, especially policies in response to shocks during financial crisis.

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Thirdly, if foreign investor participation in domestic stock market is proved to provide benefits, government policies should aim at attracting greater foreign ownership in local firms. References

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Table

Table 1 Descriptive Statistics of variables VOL1

VOL2

FOWN

SIZE

LEV

MTB

TURNOVER

-6.4008

0.0311

0.1229

13.6982

0.4819

1.4022

0.8586

-6.4871

0.0311

0.0598

13.5721

0.5117

1.0080

0.4783

-3.8584

0.2899

0.4900

17.6254

0.9575

9.4350

-9.0782

0.0069

0.0000

11.3920

0.0311

0.1484

0.7124

0.0105

0.1419

1.1110

0.2103

0.5760

14.9058

1.2282

0.6375

-0.1713

2.6718

2.3893

3.7000

366.6428

3.4051

3.3464

2.0475

11.9768

10.1572

Mean

Maximum

Std. Dev.

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Kurtosis

0.0006

1.3175

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Skewness

7.3979

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Minimum

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Median

1.0588

Notes: VOL1 and VOL2 are the two measures of the stock return volatility; FOWN is the foreign ownership level in

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a firm, SIZE is the firm size, which is calculated as the logarithm of the firm total assets at the end of the fiscal year, LEVERAGE is the ratio of long-term liability to total equity at the end of the fiscal year, MTB is the market to book

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ratio, calculated as the stock price divided by the book value per share of the firm at year end, TURNOVER is the

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annual average number of shares traded divided by the number of shares outstanding in a day.

Table 2 Correlation Coefficients amongst variables VOL1

VOL1

VOL2

FOWN

SIZE

MTB

TURNOVER

1

0.0768

1

FOWN

-0.3209

-0.0646

1

SIZE

-0.2185

-0.1846

0.2382

VOL2

LEV

1

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0.1305

0.0018

-0.2917

0.3262

1

MTB

-0.3976

0.0162

0.2001

0.1157

-0.0660

1

TURNOVER

-0.0479

0.0604

-0.1315

-0.0709

0.0468

-0.0389

1

ip t

LEV

Notes: VOL1 and VOL2 are the two measures of the stock return volatility; FOWN is the foreign ownership level in

cr

a firm, SIZE is the firm size, which is calculated as the logarithm of the firm total assets at the end of the fiscal year,

us

LEVERAGE is the ratio of long-term liability to total equity at the end of the fiscal year, MTB is the market to book ratio, calculated as the stock price divided by the book value per share of the firm at year end, TURNOVER is the

an

annual average number of shares traded divided by the number of shares outstanding in a day.

M

.

Table 3 Regression Results where the dependent variable is VOL1

Variable

C

Coeff.

te

All sample

All sample

Ac ce p

All sample

Panel Fixed Effects

d

Panel Least Squared

p-

value

Coeff.

Larger Foreign Ownership

pvalue

Coeff.

pvalue

Coeff.

pvalue

-4.6944***

0.0000

-4.5817***

0.0000

-3.3085***

0.0034

-2.2705*

0.0900

-0.9028***

0.0000

-0.9588***

0.0000

-1.0507***

0.0009

-0.6405*

0.0547

-0.1114***

0.0000

-0.1151***

0.0000

-0.2155**

0.0126

-0.3063***

0.0024

LEV

0.3814***

0.0004

0.3930***

0.0002

0.5593**

0.0425

0.5594*

0.0965

MTB

-0.1806***

0.0000

-0.1811***

0.0000

-0.1462***

0.0000

-0.0873***

0.0000

-0.0702***

0.0001

-0.0889***

0.0001

-0.0454

0.1503

FOWN

SIZE

TURNOVER

R-

0.2432

0.2538

0.5658

0.5745

Page 18 of 23

squared Adjusted RSquared

0.2402

0.2502

0.4168

82.3370

69.6694

3.7957

0.0000

0.0000

Statistics

ip t

F-

cr

Prob Fstatistics

0.4041

0.0000

3.3711

0.0000

us

Notes: VOL1 and VOL2 are the two measures of the stock return volatility; FOWN is the foreign ownership level in a firm, SIZE is the firm size, which is calculated as the logarithm of the firm total assets at the end of the fiscal year,

an

LEVERAGE is the ratio of long-term liability to total equity at the end of the fiscal year, MTB is the market to book ratio, calculated as the stock price divided by the book value per share of the firm at year end, TURNOVER is the

M

annual average number of shares traded divided by the number of shares outstanding in a day.

te

d

*, **, *** indicates significance at the 10%, 5% and 1% level respectively

Ac ce p

Table 4 Regression Results where the dependent variable is VOL2 Panel Least Squared

All sample

Variable

C

Coeff.

p-

value

Panel Fixed Effects

Larger Foreign

All sample

Larger Foreign

Ownership

Coeff.

Ownership p-

value

Coeff.

pvalue

Coeff.

pvalue

0.0314***

0.0000

0.0323***

0.0000

0.0315***

0.0000

0.1576***

0.0000

-0.0051**

0.0382

-0.0017

0.7490

-0.0048*

0.0934

-0.0098*

0.0660

LEV

-0.0009

0.5625

-0.0064

0.1174

-0.0018

0.3437

-0.0091***

0.0006

MTB

0.0002

0.3307

0.0010***

0.0003

0.0005**

0.0358

0.0040

0.4009

FOWN

Page 19 of 23

TURNOVER

0.0005*

0.0894

R-squared Adjusted R-

0.0008**

0.0456

0.0006*

0.0580

-0.0004

0.1890

0.0082

0.4002

0.0106

0.5325

0.0043

0.1952

0.0067

0.3452

2.1081

1.9529

2.7360

2.8438

0.0778

0.0000

0.0278

0.0000

F-Statistics

cr

Prob F-

ip t

Squared

statistics

us

Notes: VOL1 and VOL2 are the two measures of the stock return volatility; FOWN is the foreign ownership level in a firm, SIZE is the firm size, which is calculated as the logarithm of the firm total assets at the end of the fiscal year,

an

LEVERAGE is the ratio of long-term liability to total equity at the end of the fiscal year, MTB is the market to book ratio, calculated as the stock price divided by the book value per share of the firm at year end, TURNOVER is the

M

annual average number of shares traded divided by the number of shares outstanding in a day. *, **, *** indicates significance at the 10%, 5% and 1% level respectively

d

Table 5 Regression Results in differenced form

Variable

C

FOWN

SIZE

Larger Foreign

Ac ce p

All sample

LEV

MTB

TURNOVER

Coeff.

Dependent variable is VOL2

te

Dependent variable is VOL1

p-

value

All sample

Larger Foreign

Ownership

Coeff.

Ownership p-

value

Coeff.

pvalue

Coeff.

pvalue

0.2469***

0.0000

0.2432***

0.0000

-0.0008*

0.0934

-0.0002

0.6529

-1.2536

0.0006

-1.7747***

0.0001

-0.0329***

0.0001

-0.0083*

0.0772

-0.7251***

0.0000

-0.6401***

0.0000

-0.0082***

0.0002

-0.0068***

0.0003

1.2886***

0.0000

1.3375***

0.0001

0.0079

0.1223

0.0060

0.1740

-0.0336*

0.0703

-0.0191

0.3622

-0.0007**

0.0471

-0.0006**

0.0249

-0.0573***

0.0030

-0.0675***

0.0022

0.0013***

0.0003

0.0013***

0.0001

Page 20 of 23

R-squared

0.0868

0.0972

0.0488

0.0842

0.0820

0.0913

0.0426

0.0733

18.1941

16.4719

7.8548

7.7575

0.0000

0.0000

0.0000

R-Squared F-Statistics

ip t

Adjusted

Prob Fstatistics

0.0000

cr

Notes: VOL1 and VOL2 are the two measures of the stock return volatility; FOWN is the foreign ownership level in

us

a firm, SIZE is the firm size, which is calculated as the logarithm of the firm total assets at the end of the fiscal year, LEVERAGE is the ratio of long-term liability to total equity at the end of the fiscal year, MTB is the market to book

an

ratio, calculated as the stock price divided by the book value per share of the firm at year end, TURNOVER is the annual average number of shares traded divided by the number of shares outstanding in a day.

d

M

*, **, *** indicates significance at the 10%, 5% and 1% level respectively

te

Table 6 Dynamic GMM estimation results

Dependent variable is VOL1

Coeff.

p-value

Coeff.

p-value

0.4431***

0.0004

-0.3057***

0.0000

FOWN

-9.9627***

0.0045

-0.1416***

0.0000

SIZE

-1.1085**

0.0285

-0.0153***

0.0043

-0.3653***

0.0000

0.0024***

0.0007

7.5870***

0.0017

0.0724***

0.0006

Ac ce p

Variable

Dependent variables is VOL2

VOL(-1)

LEV

MTB

J-statistic

60.4577

27.7517

Prob(J-statistic)

0.0000

0.0005

Notes: VOL1 and VOL2 are the two measures of the stock return volatility; FOWN is the foreign ownership level in a firm, SIZE is the firm size, which is calculated as the logarithm of the firm total assets at the end of the fiscal year,

Page 21 of 23

LEVERAGE is the ratio of long-term liability to total equity at the end of the fiscal year, MTB is the market to book ratio, calculated as the stock price divided by the book value per share of the firm at year end, TURNOVER is the annual average number of shares traded divided by the number of shares outstanding in a day.

Ac ce p

te

d

M

an

us

cr

ip t

*, **, *** indicates significance at the 10%, 5% and 1% level respectively.

Page 22 of 23

*Highlights (for review)

te

d

M

an

us

cr

ip t

We investigate the impact of foreign ownership on stock price volatility in Vietnam We use different estimation techniques to control for possible endogeneity We find that foreign investors stabilize the stock price volatility in Vietnam

Ac ce p

  

Page 23 of 23