The Impacts of Foreign Investors On Stock Return: An Empirical Study in Vietnam

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TABLE OF CONTENTS
TABLE OF CONTENTS ................................................................................................... 1

ACKNOWLEDGEMENTS ............................................................................................... 3
ABSTRACT ........................................................................................................................ 4
ABBREVIATION ............................................................................................................... 5
LIST OF TABLES .............................................................................................................. 6
LIST OF FIGURES ............................................................................................................ 7
CHAPTER 1: INTRODUCTION ..................................................................................... 8
1.1. Research rationale ................................................................................................ 8
1.2. Research Background ........................................................................................... 9
1.3. Research objective and process ......................................................................... 12
1.4. Overall research findings and potential contributions .................................... 14
CHAPTER 2: DEFINITIONS AND LITERATURE REVIEW .................................. 15
2.1. Definitions and related terminologies ............................................................... 15
2.1.1. Foreign portfolio investor ............................................................................ 15
2.1.2. Stock return .................................................................................................. 16
2.1.3. Foreign ownership level ............................................................................... 16
2.1.4. Foreign investor trading volume ................................................................ 16
2.1.5. Large foreign shareholder ........................................................................... 16
2.1.6. Foreign member in BOD ............................................................................. 17
2.1.7. Strategic foreign shareholder ...................................................................... 17
2.2. Previous studies’ findings and methodologies .................................................. 17
2.2.1. Foreign investor preferences ....................................................................... 18
2.2.2. Foreign investor’s informational asymmetry ............................................ 19
2.2.3. Foreign investor’s portfolio performance .................................................. 21
2.2.4. Foreign investor impacts ............................................................................. 21
CHAPTER 3: RESEARCH METHODOLOGY ........................................................... 24
3.1. Data selection ....................................................................................................... 24
3.2. Variable’s selection and description ................................................................. 27
Supervisor: Dr. Nguyen Thi Minh Hue Tran Quy Tung – Class: Advanced Finance 53B
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3.3. Model development ............................................................................................. 29

CHAPTER 4: RESEARCH FINDINGS ........................................................................ 32
4.1. Descriptive statistics............................................................................................ 32
4.2. Regression results................................................................................................ 35
4.2.1. The Model 1 – the six factors model ........................................................... 35
4.2.2. The Model 2a – the first three factors model............................................. 39
4.2.3. The Model 2b – the second three factors model ........................................ 42
4.3. Summary of Regression results ......................................................................... 44
CHAPTER 5: RESULT DISCUSSION USING PRACTICAL EVIDENCES ........... 45
5.1. Stock return and foreign ownership level......................................................... 45
5.2. Stock return and daily buying and selling level of foreign investors ............. 47
5.3. Stock return and the presence of foreign strategic shareholder .................... 48
CHAPTER 6: CONCLUSION ........................................................................................ 51
6.1. Summary the main findings of the study .......................................................... 51
6.2. Applications of the research findings ................................................................ 52
6.3. Limitations of the study ...................................................................................... 53
6.4. Suggestions for further research ....................................................................... 54
REFERENCES ................................................................................................................. 55
APPENDIX A.................................................................................................................... 57
List of stocks selected in data set ................................................................................. 57
COMMENTS .................................................................................................................... 61
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ACKNOWLEDGEMENTS
Over the past few months, I have been received great support from a number of people who
have helped to make this study possible.
At first, I would like to extend the most sincere gratitude to my instructor, Dr. Nguyen Thi
Minh Hue, working at School of Banking and Finance at National Economics University,
for providing substantial support during the process of conducting this research. Professor
Hue, with her enthusiasm for teaching and kindness, provided me helpful opinions and
materials about the topic of foreign investor’s influence.
In addition, I would like to send a big thank you to my supervisor and colleges at
Vietcombank Securities Limited Company, who has continuously inspired me and given
me flexible conditions to complete this study. Another thank I would like to send to
students at Advance Finance Class B, intake 53, who gave me useful discussions and advice
for methodology build-up.
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ABSTRACT
This study examines the influences of foreign investors on stock return in the period from
Jan 1st, 2012 to Apr 3rd, 2015, based on a cross-sectional data set of 94 publicly-traded
companies on Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX)
in Vietnam. The study uses the Ordinary Least Squares (OLS) method to identify the
relationship between stock return and six independent variables. The analysis reveals the
positive impacts of foreign ownership level and daily buying level of foreign investors, and
a negative impact of the daily selling level of foreign investors on stock return. In contrast,
the study finds no evidence of the influence of the number of large foreign shareholders
and the presence of foreigners in the board of directors. In addition, the study provides that
the presence of foreign strategic shareholders have several practical evidences of its impacts
on stock return but not yet proved by regression model. One notable finding is that the
selling level of foreign investors has a significantly larger impact magnitude than the level
of their buying activity. In general, in a particular group of stocks which satisfy the
preferences of foreign investors, foreign investors can significantly affect the stock return
through investing and trading activities.
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ABBREVIATION
HOSE Ho Chi Minh Stock Exchange
HNX Hanoi Stock Exchange
OLS Ordinary Least Squares
JSC Joint Stock Company
FII Foreign Indirect Investment
FPI Foreign Portfolio Investment
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LIST OF TABLES
Table 1.1: Research process and expected direction of impacts .................................. 13
Table 3.1: Classified data sample .................................................................................... 26
Table 3.2: Variable description and denotation ............................................................ 27
Table 4.1: Descriptive statistics of Model 1 .................................................................... 32
Table 4.2: Correlation Matrix of Model 1 ...................................................................... 34
Table 4.3: Regression result of Model 1 with six independence variables .................. 35
Table 4.4: Ramsey test result for Model 1 ...................................................................... 37
Table 4.5: White test result for heteroskedasticity of Model 1 .................................... 37
Table 4.6: Multicollinearity test for OWN and STRA .................................................. 39
Table 4.7: Regression result of Model 2a ....................................................................... 40
Table 4.8: Ramsey test result for Model 2a .................................................................... 41
Table 4.9: White test result for heteroskedaticity of Model 2a .................................... 42
Table 4.10: Regression result of Model 2b ..................................................................... 42
Table 4.11: Ramsey test result for Model 2b ................................................................. 43
Table 4.12: Regression results summary ........................................................................ 44
Table 5.1: Stock’s information from 1/1/2012 to 3/4/2015 of listed companies which
have the room of foreign ownership over 45 percent .................................................... 45
have a foreign strategic shareholder ............................................................................... 49
Table 6.1: Investing strategies applying research findings........................................... 53
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LIST OF FIGURES
Figure 1.1: Foreign Indirect Investment (FII) from 1991 to 2014 ............................... 10
Figure 1.2: Market capitalization of HOSE throughout the years .............................. 11
Figure 1.3: Foreign investor's portfolio in HOSE and HNX at May 6th, 2015 .......... 11
Figure 5.1: VN-index and foreign investor trading activities from 1/1/2012 to
3/4/2015 .............................................................................................................................. 47
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CHAPTER 1: INTRODUCTION
1.1. Research rationale
Nowadays, although Vietnam stock market is still a young frontier market with a history of
14 years and approximately 50 billion dollars market capitalization, it is emerging quickly
along with the recovery of Vietnam’s economy and the improvement of the investment
environment. Among over 1.3 million securities accounts of investors that were reported in
Vietnam stock market in 2014, foreign investors play an important role despite the small
number of nearly 16,000 foreign investor accounts. Foreign investors are holding a huge
and varied portfolio of listed stocks which valued 11.8 billion USD and constitutes for
around 23 percent of the total market capitalization, according to www.cafef.vn. Foreign
investors continuously invest and speculate stocks of listed companies in stock exchange,
contributing to the vibrant of two exchanges in Vietnam. By performing a number of
activities for different purposes, foreign investors are participating deeply in Vietnam stock
market and have certain influence on stock return.
According to many released newspaper articles, foreign investors can affect the behavior
of the crowd of Vietnam individual investors through daily trading, although their trading
volume is not too large in compared to the whole market. However, consistently with
previous studies of Lin & Shiu (2001) in Taiwan market, of Vinh (2010) in Vietnam,
foreign investors prefer to invest in and trade blue-chip stocks of large firms such as HPG,
GAS, PVD, VCB, VIC, MSN… which have significant weight in calculating market index.
Therefore, they can push the index up by purchasing a massive volume of few large-cap
stocks, and pull the index down by making the reverse transactions. Foreign investors also
favor to invest in firms which they can have influence In addition, Bansal and Pasricha
(2009) found that, foreign ownership has mediated the stock market behavior by
significantly reducing market volatility after the policy related to Foreign Indirect
Investment was unlocked.
Besides trading stocks, foreign portfolio investors also participate in management activity
of listed firms. This was studied by Chhibber and Majumdar (1997) who indicated that a
corporate’s performance was relatively superior if the property right is devolved to foreign
owners, at foreign ownership level showing a dominant power at 51 percent. In fact, the
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greater proportion of ownership a foreign investor own, the higher power they have in
company. In addition, from a certain level of ownership proportion, usually over 5 percent
of total shares, an individual foreign shareholder can elect himself, and a foreign
institutional shareholder can nominate its representative to join company’s management
board. The participation of foreign investors, especially in position of strategic shareholder
can bring a big change to company performance by innovating corporate culture and other
decision making.
The individual investors in Vietnam nowadays have a great concern about the foreign
investor. An unqualified number of investors in Vietnam, especially unprofessional ones,
believe that foreign investors have informational advantage over domestic investors. This
point has been a controversial topic in years among researchers. Seasholes (2000) indicated
that foreign investors have superior information over domestic investors when they tend to
buy prior to positive and sell prior to negative earnings surprises.
In general, these raised a question: What are the truly influences and at what level do foreign
investors make on stock return through their trading activities and other ownership’s
factors? How individual investors can make better investing decision by analyzing this
force?
By searching and summarizing relevant literature, the author found that there are still very
few studies in Vietnam and global examining consistently the mechanism and the level
foreign portfolio investors influence the return of listed stocks. Therefore, this research has
a great opportunity to cover those critical issues by using data in Vietnam stock exchange.
1.2. Research Background
Vietnam stock market was established in Jul 11th, 1998 with the launching of the Decree
48 of Government about Securities. 2 year later, in Jul 21st, 2000, Ho Chi Minh Stock
Exchange (HSX) operated. However, in the first 5 years, there were very few companies
listed in the exchange and the trading activities were not active.
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Figure 1.1: Foreign Indirect Investment (FII) from 1991 to 2014
2008-2011: over 1.2

billion USD FII
poured. 3 ETFs
2003-2005: 13 new openned. Foreign
funds with 908 ownership room up to
million USD. Foreign 49%.
1991-1996: 7 ownership room up to
international funds 30% from 20%. 2012-2014: FII
with 400 million USD increases steadily.
2006-2007: WTO
1997-2002: Financial participated. 12 new
crisis. Only 2 funds funds & 2 billion
left. USD new investment.
Source: ssc.gov.vn
From 2006, along with the high growth of domestic economy and participation of Vietnam
in WTO (World Trade Organization), Vietnam stock market realized a massive wave,
attracted many domestic and foreign investors, especially institutional investors to invest
in Vietnam listed stocks. In this period, hundreds of stocks were listed, including many
large-cap and leading companies such as Vinamilk, PV Drilling and FPT. Since then, the
foreign investors have increased sharply their ownership in Vietnam corporations. 2 billion
USD of foreign portfolio capital was poured into Vietnam in 2006-2007 and accounted for
60 percent total market transaction value in that period. The establishment of Hanoi Stock
Exchange at Jun 24th, 2009 helped Vietnam stock market increases its scale massively. In
2009, government published 55 Decree, deciding to open the room for foreign investors in
listed companies up to 49 percent with ordinary listed join stock companies, in order to
limit the invasion of foreign capital through exchange, so that many Vietnamese leading
industry firms could not be overtaken by foreign force. Although the limitation still exists,
this policy has boosted the foreign indirect capital flow into Vietnam stock market, which
lead to the vibrant of foreign investors’ activities in Vietnam. One noted movement in 2011
is the appearance of three Exchange Traded Fund (ETF) which contributed to Vietnam
stock market over 150 million USD and more in following years. Many stocks have reached
the maximum ownership level for foreign investors such as FPT, VNM, BMP, VSC... They
are usually blue chip with good business performance. Specially, the room of foreign
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ownership of listed commercial bank is directly regulated by State Bank and the maximum
level now is just 30 percent. Recently, there is a possibility that the policy maker can extend
the room for foreign investors in listed firms up to 60 percent.
Figure 1.2: Market capitalization of HOSE throughout the years (unit: billion dong)
1,200,000
985,258
1,000,000
842,105
800,000 678,403
600,000
453,784
400,000
200,000
0
2011 2012 2013 2014
Vietnam Stock market is emerging, attracts the concern of foreign investors. In 2014, VN-
index rose 9 percent, meanwhile HNX-index rose 24 percent compared to 2014. In the
Figure 1.2, market capitalization of HOSE (the largest and representative exchange in
Vietnam) increases robustly throughout the years, reached 985,200 billion dong in the end
of 2014. The total capitalization of two exchanges reached 1,128 billion dong which is 179
billion dong higher than that in 2013, equivalent to 31.5 percent of Vietnam’s GDP. This
enormous growth has led foreign investors to increase their activities.
Figure 1.3: Foreign investor's portfolio in HOSE and HNX at May 6th, 2015
Vinamilk
8% 20%
Vietcombank
8% Masan Group
45% 8% Vietin Bank
7% Vingroup
4%
Other stocks in HOSE
Stocks in HNX
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About the activities of foreign investors in HOSE 2014, their transaction had increased
significantly in compared with 2013. Foreign investors had purchased 68,480 billion dong,
up 52.3 percent, and sold 65,593 billion dong, up 64.4 percent, comparing with 2013. It is
noted that foreign investors invest mainly in stocks listed in HOSE, which accounts 92
percent of total foreign portfolio investors’ ownership in two exchanges of Vietnam. The
transaction volume of foreign investors in HOSE also out-weights in HNX. The reason is
that HOSE is more advanced than HNX in requirements, scale and representative level.
According to www.cafef.vn, at May 6th, 2015, foreign investors are owning a stocks
portfolio value 259,000 billion dong in two exchanges, equivalent of 12.07 billion dollars.
This amount accounts for approximately 23 percent ownership of total market. Nearly 50
percent of this portfolio is the foreign ownership in some blue-chip stocks such as VNM,
VCB, MSN, CTG, VIC…. The large foreign fund management companies which are
operating in Vietnam stock market, are Dragon Capital, VinaCapital, Deutsche Bank, Red
River Holding, VNM ETF…
1.3. Research objective and process
The objectives of this study is (1) to provide a background of foreign investors, relevant
literatures and their activities in Vietnam exchanges; (2) to investigate the real impacts of
foreign investor trading activities and their ownership characteristics on stock return, and
to explain why those impacts happen by the practical evidences. After that, by summarizing
the results, this study will suggest some investing strategies by analyzing the foreign
investor activities to make higher profit in Vietnam stock market.
To achieve these purposes, the author conducts regression model using Ordinary Least
Squares (OLS) method and six independent variables included foreign ownership level, the
level of daily buying and selling activities of foreign investors, the number of large foreign
shareholder, the presence of foreigner in BOD and foreign strategic shareholder.
This study examines a sample of 94 Vietnamese listed companies, categorized in 10

different industries. This data set is chosen from two Vietnam stock exchanges, included
Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). In order to avoid
biases, the observations need to be satisfied by the criteria related to foreign investors. The
author argues that with 94 companies, the number of observations is not too large, but
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enough to conduct research with classified 10 industry categories, proportionally satisfied

the diversification level to represent the population.
Table 1.1: Research process and expected direction of impacts
Dependent Expected
Model Independent variable
variable Sign
Foreign ownership level +
Daily buying level of foreign investors +
Daily selling level of foreign investors -
Model 1 Stock Return
The number of large foreign shareholder +
The presence of foreigner in BOD +
The presence of foreign strategic shareholder +
Model 2 Stock Return Valid independent variables in Model 1
Source: Author’s analysis
The author conducts several predictions for this research after reading literatures which are
presented in the Table 1.1. Except daily selling level of foreign investors which is predicted
to have negative impact on stock return, the other five independent variables are all
expected to have positive impacts on stock return.
In the second chapter, the author revises the brief findings and methodologies of
international literatures studied about foreign investors and their influences. Although the
author finds no released research with same topic, but literatures still have an important role
in providing fundamental knowledge of foreign investors. Next, the third chapter will build
up methodology for this study by learning experiences from other literatures.
In the fourth chapter, the data set is analyzed in descriptive statistics and regression model.
Then, the author will use practical examples to back up for the findings.
The final chapter summarizes the findings and limitations of this study and make
conclusions. Then, from the findings, the author reveals several facts of foreign investor
activities and then show how to apply them to create effective investing strategies for
individual investors. Finally, the author suggests further issues for future researches to close
this paper.
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1.4. Overall research findings and potential contributions
The result of this research provides strong evidences that stock return is influenced
significantly by foreign investor trading activities and ownership level. The higher level of
foreign ownership of a listed firm, the better stock return it had in a period of time from
2012 up to the first quarter of 2015. Meanwhile, in term of absolute value, the negative
effect of foreign investor selling activity is much higher the good effect of their buying
activity. Besides, the presence of strategic foreign shareholder just shows a little evidence
of its effect on stock return due to limitation of data sample. The other independent
variables, which are the number of large foreign shareholder of company and the presence
of foreigner in company’s Board of Directors, show no evidence of their influence on stock
return and also being explained by practical examples.
This research has defined and measured apart the impacts of foreign investor activities and
their factors on stock return for the first time in Vietnam. In the view of the author, this
study will make many positive contributions, not only to the academic class, but also the
wide range of individual investors. The result can help domestic individual investors to be
aware of the significant influences of foreign investors. This provides the deeply
understanding of foreign investors in Vietnam, their characteristics and other related
aspects. It shows why the stocks which foreign investors buy, hold, in particular conditions,
usually have an extraordinary performance than the average measured by the return of
market index. By understanding the qualitative analysis about foreign investors and
knowing proportionally how much did they affect to stock return by quantifying the related
variables, the individual investors can have some new indicators in their own investing
strategy. Otherwise, this study also suggests objectively several investing strategies based
on research’s results.
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CHAPTER 2: DEFINITIONS AND LITERATURE REVIEW

This chapter focuses on building up the theoretical fundamental for the research.
2.1. Definitions and related terminologies
This section covers the definitions and terminologies related to foreign investors, especially
the definition of variables and their measures which can help this study have a well-built
fundamental based on reference papers, articles and previous studies….
2.1.1. Foreign portfolio investor
The foreign investor refer to an economic term used for investors from other nations that
invest capital in another country by two way: directly or indirectly.
 According to Investment Law, Clause 2-3, Article 3: Foreign Direct investment (FDI)
is a form of investment as investors pour capital and participate in the management of
investment activities. Meanwhile, Foreign Indirect Investment (FII) is a form of
investment through the purchase of shares, stocks, bonds and other valuable papers,
securities investment funds and through other intermediary financial institutions that
investors do not involve directly in the management of investment activities.
 According to IMF: FPI (Foreign Portfolio Investment - The more common term used
of FII) is buying activities of securities (shares or bonds) issued by a company or
government agency of another country, domestic or foreign financial institution.
In general, Foreign Indirect Investors is the investors, including individuals or institutions,

which invest their capital through purchasing securities (usually stocks, bonds and fund
certificates) to generate profit without participating manage directly the company that they
invested in. This research studies mainly about foreign indirect investors. Therefore, the
word “foreign investors” that the author uses in this study refers to the term Foreign Indirect
Investors, or Foreign Porfolio Investors.
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2.1.2. Stock return
According to www.investopedia.com, this is a common term refers the gain or loss of a

stock in a particular period. The return consists of the income and the capital gains relative
on an investment. It is usually quoted as a percentage.
In this research, the author uses adjusted trading data from www.cophieu68.vn in which the
stock prices have been adjusted by the cash dividend payment, or stock
splitting…Therefore, the stock return that the author computes from stock price data has
consisted of both dividend income and capital gain, as its true definition.
2.1.3. Foreign ownership level
This refers to the fractional of shares in total shares of a company that foreign investors
hold. The variable Foreign ownership level had used as dependent variable in study of Vinh
(2010) which stated that it can “provide insights about the characteristics and trading
behaviors of foreign investors”. He collects year-by-year basis data of foreign ownership
in Vietnam from 2007 to 2009. Then, he conducts regression model on a year-by-year basis
in order to compare the differences in the result of three years.
2.1.4. Foreign investor trading volume
This is the number of shares that foreign investors buy or sell in stock exchange. It is usually
measured in daily basis. However, many monthly, quarterly and yearly reports of domestic
analysts has revealed the total buying, selling and net trading volume of foreign investor
class over the period. The trading statistics of foreign investors have been studied by Kalev,
Nguyen & Oh (2006) in Helsinki Stock Exchange, which is also collected in year-by-year
basis for the period of 5 years. It indicated that foreign investors are by far the most active
traders on the HEX, even in stocks with strong domestic holdings.
2.1.5. Large foreign shareholder
According to Clause 9, Article 6 of the Vietnam’s Securities Law issued in 2006, large
shareholder is the shareholder who owned directly or indirectly from 5 percent or more of
the shares with voting rights of the issuer.
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2.1.6. Foreign member in BOD
Relating to this variable, Masulis, Wang & Xie (2011) have a study examined about the
benefits and costs associated with foreign independent directors (FIDs) in BOD using data
of U.S corporations in S&P 1500 Index in the period of 8 years.
2.1.7. Strategic foreign shareholder
According to www.businessdictionary.com, strategic investor is individual or firm that

adds value to the money it invests with its contacts, experience and knowledge of market,
therefore brightening the prospects of the investee for additional investment and success.
This is a common term in Vietnam used for the foreign firm that invest in a large amount
of share (usually 10-30 percent) of a Vietnamese company which has similar business and
industry, to become strategic shareholder. Both the buy-side and sell-side expect that the
new ownership structure can bring great benefit to them by utilizing experiences of the
buyer and unique advantage of the seller.
2.2. Previous studies’ findings and methodologies
There are many scientific researches, study about foreign investors, their preferences, their
influences on stock market and performance of each individual company they invested in.
This section will review the existing literatures in various issues related to foreign investors
and their characteristics, and focus on how this study can use their results and experiences.
Bartram & Dufey (2001) published a research constructing the theory of international
portfolio investment which was supported by evidence and institutional framework.
According to their research, by investing in foreign securities, investors can possibly
participate in other countries’ growth, hedge their consumption basket against exchange
rate risk, realize the effects of diversification and take advantage of market segmentation
on a global scale. However, the risk and other constraints of international portfolio
investment such as tax issues, information, transaction cost and liquidity are important
factors that investors need to consider. This research revealed the reason of the rise of
capital flows moving around the world. And now these flows are pouring in the fast growing
countries such as China, Indonesia, India,…and Vietnam also. Moreover, the research
indicated what risks and constraints foreign investors need to be aware of.
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2.2.1. Foreign investor preferences
Many researchers study about foreign investor’s preferences. Lin & Shiu (2001) issued a
paper that examined foreign ownership in the Taiwan Stock market in the period 1996-
2000. The cross-sectional data in year-by-year basis for the period were collected which
are also stacked to panel data. This consisted foreign ownership level and firm’s
characteristic information including market value, export ratio, book-to-market equity,
dividend yield, beta, debt ratio, current ratio. Then, the Random Effect Model (REM) is
used to analyze the relationships among foreign ownership and other factors. From the view
of informational asymmetry, foreign investors favor large firms and stocks with low book-
to-market ratios. Their analytical results showed that foreign investors strongly prefer
companies with high export ratios. For small companies, foreign investors hold more shares
of high beta stocks than of low beta stocks. The different results of large firms implying
that they have lower investment barriers than small firms. There was a weak evidence for
the conclusion that foreign investors may hold slightly more stocks with low dividend yield,
due to different tax statuses.
In the paper of Vinh (2010), he also examined the relationship between the foreign
ownership level and attributes of Vietnamese listed firms in Ho Chi Minh Stock Exchange.
Following the same method with Lin & Shiu (2001), the findings of this paper indicated a
similar result. Foreign investors have preference for large firms, firms with low leverage
and firms with high book-to-market ratio. They also avoid firms dominated by one
shareholder and prefer to invest in firms where they can make changes. These results
implied that foreign investors favor to invest in stocks in which they can avoid the
informational asymmetry.
Kang & Stulz (1997) examined stock ownership in Japanese firms by non-Japanese
investors from 1975 to 1991. 17 large firms’ samples and market data including equally
and value-weighted foreign ownership for non-financial Japanese firms was collected year-
by-year to conduct panel data analysis. The number of observation in each sample ranges
from 868 in 1975 to 1,452 in 1991, which were classified in 8 categories to analyze the
differences of foreign ownership among industries. To examine the relationship of firm’s
characteristics and foreign ownership, the study ran regression using random effect model
for both cross-sectional and time-series data. This research indicated that foreign investors
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in Japan hold disproportionately more shares of large firms, manufacturing firms, and firms
with good accounting performance and low leverage. Small firms with high export, or with
greater share turnover also have higher foreign ownership.
These results of prior researchers about the characteristics and preferences of foreign
investors have indicated a way to select an appropriate sample for this research. The major
object is to avoid biases raising from the stock that violate foreign investors’ choosing
principles such as small firms, firms with dominant shareholder and stocks with low
liquidity. These stocks often have informational asymmetry and will be excluded in this
study’s sample. The main purpose of setting sample conditions is to be able to assess the
different impacts of foreign investors to return of the stocks which have similar criteria, in
another words, trying to hold other variable constant.
2.2.2. Foreign investor’s informational asymmetry
There is a large and growing number of literatures examining whether foreign investors
have information advantages or disadvantages over domestic investors in developing
markets.
Many researchers argued that foreign investors have better information than domestic
investors. Seasholes (2000) employed listed firms in Taiwan Stock Exchange to investigate
whether foreign investors have superior information than domestic traders by examining
net buying level prior to positive and negative surprises in firm’s earning. The results
indicated that foreign investors have information advantages over domestic investors when
they tend to buy prior to positive earning surprises and sell prior to negative surprises in
earning. Besides, he also calculated daily returns of a representative foreign portfolio. The
return was a weighted average return across stocks where the weights were in turn
calculated based on initial holding levels and daily net purchases of stocks by foreign
investors. The weights were adjusted daily. The daily returns of the foreign portfolio were
regressed on a constant and on the market returns. The estimated constant was positive and
statistically significant, indicating that foreign investors earn above market-risk adjusted
returns.
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On the other side, many authors showed the results that foreign investors stand at an
informational disadvantage compared to domestic investors. Based on a model of
international investment flows, Brennan & Cao (1997) observed that U.S investors tend to
buy foreign equities if the foreign market return is high, and global financial institutions are
more optimistic if the foreign markets return increase. Then they found that U.S. investors
being less informed and trading on new information with a lag in relative to local investors
in foreign markets.
Using transaction data from Indonesia, Dvorak (2005) showed the differences between
return of domestic investors and foreign investors. Clients of global brokerages had higher
long-term profit and smaller medium-term (intra-month) and short-term (intra-day) profits
than clients of local brokerages. This suggested that clients of local brokerages have a short-
lived information advantage, but global brokerages’ clients are better at choosing long-term
winning stocks. In addition, with global brokerages, domestic clients had higher return than
foreign clients, implying that the mix of local information and international expertise leads
to better investing performance.
Kalev, Nguyen & Oh (2006) used data in Helsinki Stock Exchange (Finland) from 1999 to
2014 and examined the trading profitability of local and foreign investors. They found some
evidence to support informational asymmetry hypothesis between two groups. According
to their study, foreign investors tend to choose stock with an international profile and
transparent information. They was also outperforming local investors in this category with
some global stocks such as Nokia. However, excluding Nokia, local investors had better
performance. This evidence is strongest in intra-month and longer period.
The findings from other research by Hau (2001) using Germany data and Choe et al (2005)
using Korea data are consistent with the argument that foreign investors are informational
disadvantage in compared with local investors.
The author argues that the informational advantage and disadvantage of foreign investor is
the matter of which countries they invest in and how high the informational barriers in those
countries are. However, this study tends to prove that foreign investors do not have
informational disadvantage over domestic investors. In the limitation of this research,
author could not have enough evidences and analytic depth to examine whether foreign
21
investor has superior informational advantage than domestics investors. In this research,
the author expects to find out the positive effects on stocks price in Vietnam through the
level foreign investors’ trade daily, in order to prove the statement author raised above.
2.2.3. Foreign investor’s portfolio performance
These researches studied about the performance of the investment portfolio of foreign
investors and examined if they have better or worst return than domestic investors.
Grinblatt and Keloharju (2000) compared tendency to buy future winning stocks and sell
future losing stocks in order to measure the performance of foreign versus domestic
investors. They classified future winning (or losing) stocks were those with 6-month returns
in the top (or bottom) quartile. The tendency to buy winners and sell losers is computed as
the difference between the foreign buying volume of winning stocks subtract the foreign
buying volume of losing stocks. This approach is simple and intuitive. However, it requires
a subjective judgment on classifying winning and losing stocks and appropriate investment
horizons. In this paper, they had found strong evidence that foreign investors outperform
domestic investors.
2.2.4. Foreign investor impacts
An important literature source that author uses are the researches working on foreign
investors’ impacts on stock market, stock price and firm’s performance. These materials
support the expected results of this study that foreign investors have positive impacts to
stock return through participating in firm’s management and trading operations in
exchange.
Choi (2011) examined the effects of foreign equity ownership and management on
companies’ performance using a panel data of Korean firms from 1993 to 2007. This is the
time that has experienced a dramatic rise in foreign capital inflows in response to the
liberalization of stock market to foreign investors. Choi (2011) used industry adjusted-
Tobin’s q as primary measure of firm performance. It was computed by subtracting the
industry median from individual firm value. Tobin’s q is defined as this formula: (Market
value of common stock + book value of preferred stock + total debt)/Book value of total
asset. He used a list of independent variables including standard ones such as firm’s size,
22
financial risk (debt ratio), systematic risk (beta), family ownership, R&D intensity
(measured by intangible asset) and adding chaebol affiliation as an indigenous industrial
organization variable. Choi (2011) also used year dummy variables to control time effect.
Empirical results shown that foreign ownership has significant and positive impacts on
performance of listed firms, implementing the monitoring function of domestic
shareholders and countering indigenous forces such as family ownership and business
groups. He stated that the results were strong regardless of whether the model is estimated
in a single equation or a simultaneous equation framework. The positive impacts of foreign
ownership had increased along with liberalization of market while that of indigenous
ownership had decreased. Beyond foreign ownership, there is evidence that foreign
management participation improves local firm performance further – and the effect is
greatest in case when firms have a foreign management team consisting of both foreign
CEO and directors rather than only one. In emerging markets, foreign ownership and
management can play a significant and positive role in local companies.
A research of Bansal and Pasricha (2009) studied the foreign institutional investor’s (FIIs)
impacts on stock price in India. They explored the impact of market opening to FIIs, on
Indian stock market behavior, especially on returns and volatility of stock return. They used
stock market data relating to Bombay Stock Exchange, for both before and after the FIIs
policy announcement day. They found that while there is no significant change in the
average returns of Indian stock market, volatility is reduced significantly after India
unlocked its stock market to foreign investors.
Masulis, Wang & Xie (2011) examined the benefits and costs related with foreign
independent directors (FIDs) at U.S. firms. They found that firms with FIDs have better
cross-border acquisition deals when the target companies are from the home regions of
FIDs. However, FIDs perform poor board meeting attendance records. Moreover, there is
evidence proved that firms with FIDs have significantly poorer performance, especially as
their business presence in the FID’s home region becomes less important.
Hao (2004) examined stocks in Japanese stock market. He found that the level of foreign
ownership is significantly positively correlated with future stock returns in the period of
1991-2001. In the study of Jiang Hao (2004), to explore the level of foreign investors is
related to stock characteristics, he examined the relation of a set of 12 firm’s characteristics
23
to foreign investors’ demand, including stock return in both short-term and long-term. He
employed two method to define this relation. First, he ran cross-sectional regressions on the
year-by-year basis from 1978 to 2001 which are specified as follows:
FOit = αt + βtXit + εit
Where FOit is the percentage of foreign ownership and Xit is a vector of 12 firm
characteristics. After that, he used panel-data regressions to capture the dynamic adjustment
of foreign ownership.
The results of Choi (2011) and Hao (2004) provide very important basis and references for
this study to develop the hypotheses related to the impacts of foreign investors on stock
returns.
However, the author argues that there is still a large room for further research. There are
very few researches studied the activities and effects of foreign investors in Vietnam stock
market. In international scale, the effects of foreign investor’s activities and other
characteristics on stock returns are still not studied sufficiently and clearly enough. The
literatures only research the preferences, the performance, the informative advantage, the
impacts on firm performance and stock market of foreign investors. However, they did not
explore the bottom line of the issue, which is the stock return, and the necessary suggestions
for specific investing strategies in practical based on the analysis about foreigner investors,
which are very useful for individual investors. This is the opportunity for this study to cover
all of those issues.
24
CHAPTER 3: RESEARCH METHODOLOGY

This chapter displays clearly the main research methodology of this study which consists
of these following steps. The first step, selecting sample and variables will be presented in
detail in this section in order to prepare for the major part which is running regression
model.
Selecting Sample & Variables
Constructing Regression models
Testing Hypotheses
Explaining Results
3.1. Data selection
In the first stage of the research, the author collects data from listed stocks on HOSE and
HNX. The main data categories are stock’s trading data and ownership structure
information including daily historical price, trading volume of foreign investors in daily,
current foreign ownership proportion and composition of management board and
shareholders structure.
This study assesses the level of how foreign investors’ activities and characteristics affect
stock return. In order to evaluate the true influence level of foreign investors, this research
keeps the other influential factors remain constant. According to the previous study of Lin
& Shiu (2001) about foreign investor’s preferences, the author creates a criteria set which
25
is not related with foreign investors, for sample selection. The author’s expectation is that
chosen stocks in sample will have similar features.
This study uses data from popular and reputed information collectors in Vietnam such as
www.cophieu68.vn, www.vndirect.com.vn and www.cafef.vn. From the population of
stocks in both Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX)
in Vietnam with 678 stocks in total, the author chooses a sample of 94 stocks by excluding
stocks which violate at least one in several following criteria:
(1) Market capitalization of a stock is larger than 300 billion dong (equivalent to 13.7
million USD): This requirement can help to exclude tiny-size firms, because they are
too small for almost foreign investors who usually are institutions to invest in. The study
of Vinh (2010) also states that foreign investors prefer large firm. Penny-size stocks also
have low informational transparency which is the factor restrict foreign investors. Using
this criteria, the author excludes 475 stocks.
(2) The first listed date of stocks before Jan 1st, 2012: this is for purpose of assessing the
return of Vietnam stock’s in a similar period from Jan 1st, 2012 to Apr, 3rd, 2015 and
excluding stocks which do not have enough trading data. This requirement excludes 36
stocks.
(3) The average daily trading volume of each stock excess 10,000 in chosen period:
author uses this requirement to avoid the difficulties caused by the presence of stocks
with low trading volume in the sample. The price of a low volume stock can easily be
manipulated by speculative forces in Vietnam stock market which lead to biases in
working. The foreign portfolio investor also prefer stocks with high liquidity so they
can decapitalize faster. This have been proved in the study of Lin & Shiu (2001). 47
stocks were excludes due to violating this criteria.
(4) Ownership structure of stock does not contain dominant shareholder with over 51
percent ownership: The companies which have dominant shareholder are not preferred
by foreign investors. The dominator can easily manipulate business performance and
the minority shareholders do not have much influence in decision making. A large
number of stocks in this category are state-owned. Many of stocks which are dominated
by one party do not need much effort to get an acceptable business result because their
contracts and customers are allocated by the holding company. Therefore, these stocks
26
can have a really good growth and stock return without any participation of foreign
investor. The author excludes 20 stocks more using this criteria.
(5) Stocks in sample is non-bank: In Vietnam, banking system is governed by State Bank
and the room for foreign ownership is regulated and limited at maximum of 30 percent.
Three of nine listed bank are state-dominated (including VCB, CTG and BID), MBB’s
room is only 10 percent. Vietnam commercial banking system only has about 20-year
history and struggles in crisis in few recent years after the bubble in 2006-2010. This
has led to the restructuring banking system policy of government. Along with the low
information transparency of commercial banks in Vietnam, the author decides to
exclude stocks in banking sector out of study’s sample. This is quite consistent with the
paper of Choi (2011) when he also excludes financial institutions out of the sample
because they was subjected to different regulations and still undergone restructuring
process since the Asian financial crisis. After using this requirement, 6 stocks of
commercial banks are excluded.
Table 3.1: Classified data sample

No. Industry Number of firms
1 Real estate & Construction 25
2 Construction Materials 5
3 Finance 8
4 Manufacturing 16
5 Agriculture 11
6 Logistics 4
7 Service 5
8 Trading 6
9 Medical & Pharmaceutical 6
10 Energy 8
Source: Author’s classification
Overall, after using five criteria, 94 firms are chosen to form a suitable sample for the
purpose of this study. Once again, it is noted that in this part, the author tries to create a
sample with all stocks has the same business condition. Thus, this research can access the
influence level of foreign investors without distract by the outliers.
27
3.2. Variable’s selection and description
In our regression model, author uses stock return (RET) as dependence variable and six
independent variables which are shown in the table below. The examining period is from
Jan 1st, 2012 to Apr 3rd, 2015.
Table 3.2: Variable description and denotation
Variable Measure Denotation
st rd
Stock return Stock return from Jan 1 , 2012 to Apr 3 , RET
2015 (equivalent to 3.25 years), in
percentage
Foreign ownership level The current percentage of foreign ownership OWN
in company’s ownership structure
Daily buying level of The percentage of average daily foreign BUY
foreign investors investors’ buying volume divided by average
daily total trading volume of a stock.
The percentage of average daily foreign SELL
Daily selling level of
investors’ buying volume divided by average
foreign investors
daily total trading volume of a stock.
The number of large The current number of foreign shareholders LAR
foreign shareholder which have ownership percentage higher
than 3 percent
Company has foreigner member in Board of MEM
The presence of foreigner
Directors or not. (equal 1 if the answer is yes
in BOD (dummy)
and 0 if the answer is no)
The presence of foreign Company has foreign strategic shareholder STRA
strategic shareholder or not (equal 1 if the answer is yes and 0 if
(dummy) otherwise)
(1) Stock return (denoted by RET): The author chooses stock return (RET) as model’s
dependence variable because stock price reflects the all of the factors that affect to
corporate and stock return is in turn reflect the changes in those factors. Many theories
are constructed based on analyzing stock return and its related variables such as Market
28
efficiency theory of Eugene Fama (1970), Random Walk Theory of Burton Malkiel
(1973)…
(2) Foreign ownership level (denoted by OWN): This independent variable is chosen
because it refers to which level the group of foreign investors own a firm. The ownership
is the major source of power of shareholders over their company. If foreign shareholders
have high ownership level, they can participate in company governance, even by
collaborating and grouping between many small foreign owners base on similar interest.
Study of Vinh (2010) has indicated evidences to support these points. Besides, the
higher level foreign portfolio investors own a stock also proves that they have higher
concern about that stock. Therefore, author argue that this is one of the best independent
variable to measure the influence of foreign investors over a stock. The foreign
ownership level will be measured by the percentage of total share of a firm that foreign
investors own. It is expected to have a positive relation between OWN and RET because
the participant of foreign investors in company ownership structure can improve its
performance through the international expertise utilization.
(3) The presence of foreigner in Board of Directors (dummy variable-denoted by
MEM): If a foreigner participates in management board of a firm, he or she might affect
the business decisions of the board by raising different opinions from non-Vietnamese
perspective. Then, the stock price is also affected. The author expects that this variable
has a positive effect on company’s performance through well-contribution in BOD’s
decisions making thanks for deep understanding and specialization about industry and
business. This is contradicted with the findings of Masulis, Wang & Xie (2011) on U.S
firms due to the huge distance between market development levels of two countries.
(4) The presence of foreign strategic shareholder (dummy variable-denoted by
STRA): Strategic shareholder usually brings a great change to a firm with theirs
business network, contacts and experiences in the field company doing business on.
Therefore, the author uses this variable in regression model to define if foreign strategic
investor can help domestic company to improve business performance and its stock
return. In prediction, the author expects that this variable also has a positive effect on
stock return.
(5) Number of large foreign shareholder (LAR-with ownership higher than 3 percent
of total share): this variable is chosen to test the assumption that investors which have
29
over 3 percent ownership, are stronger in financial capability, investing experience and
well-analyzing knowledge. Almost large foreign investors in Vietnam are institutions,
many of them are investment fund. The variable probably measures of foreign investor’s
influence on stock return. This variable is expected to have positive influence on stock
return because the higher number of large foreign shareholder, the higher expectation
foreign investor class has on company’s prospect. Along with the common sense of
many domestic investors that the foreign investors, especially institutional investors,
have higher specialization and decision’s accuracy, the companies that have many large
foreign shareholders may have some unique advantages and bright prospect, which lead
to the increase of stock price and its return.
(6) Daily buying and selling level of foreign investors (denoted by BUY and SELL,
respectively): these two variables are picked into model to access how foreign
investor’s trading activities in the exchange can affect the return of stocks. Both BUY
& SELL are measure by the percentage of average daily foreign investors’ buying or
selling volume divided by average daily total trading volume of a stock. In fact, trading
volume of foreign investor only accounted for approximately 10 percent of total trading
volume in average. However, the trading activities of foreign investors usually focus on
blue-chip and high liquidity stocks, which satisfy their preferences, leading to
significant influence on the market index and the behavior of domestic individual
investors. The reality show that a string of net purchasing of foreign in a stock has a
positive effect on how overall market judge that stock. Therefore, the stock’s price may
rise in short-term due to foreign investors’ effect. In addition, the selling activity of
foreign investors has opposite effect on market. Although the impacts of BUY & SELL
in short-term are recognizable, the author still expects that BUY & SELL have positive
& negative effect, respectively on stock return in long-term (for 3 years in this study)
because buying and selling stocks may be considered by market as signals about
company’s prospect.
3.3. Model development
Using cross sectional data of 94 listed companies, this study applies Ordinary Least Squares
(OLS) method in regression model to examine the potential relationship between stock
return and foreign investor’s factors. OLS is a popular method for estimating the unknown
30
parameters in a linear regression model. The OLS estimator is consistent when the
regressors are exogenous and there is no perfect multi-collinearity. It is optimal in the class
of linear unbiased estimators when the errors are homoscedastic and serially uncorrelated.
First, the author generates descriptive statistics to understand the features of foreign
investors of listed firms in Vietnam stock market, as presented by the sample data. Next,
correlation analysis is used to derive an overview of relationship between each pair
of variables. Then, linear regression is performed then as the major analysis to identify the
factors among foreign ownership characteristics and activities that can explain stock return
of Vietnamese listed firms.
Following Vinh (2010), Hao (2004) and Choi (2011), the author runs a linear regression
model with the below function:
RETi = α + βXi + εi
Where RETi is the stock return from Jan 1st, 2012 to April 3rd, 2015, Xi refers to the set of
six foreign investor’s characteristics which include:
1. Foreign ownership level - OWN
2. Daily buying level of foreign investors - BUY
3. Daily selling level of foreign investors - SELL
4. The number of large foreign shareholder - LAR
5. The presence of foreigner in BOD (dummy) - MEM
6. The presence of foreign strategic shareholder (dummy) – STRA
Therefore, the linear regression function can be rewritten as follow, denoted as Model 1:
RETi = α + β1OWNi + β2BUYi + β3SELLi + β4LARi + β5MEMi + β6STRAi + ε
After conducting regression model, the author will take necessary tests including Ramsey
RESET Test (Ramsey, 1968, testing model’s mis-specification) and White Test (White,
31
1980, testing model’s heteroskedasticity) to identify whether the model violates any
statistic conditions. In addition, the author also identifies multicollinearity among variables
by running sub-regression.
32
CHAPTER 4: RESEARCH FINDINGS

4.1. Descriptive statistics
Table 4.1 below presents descriptive statistics of the data of 94 companies in the sample. It
can be seen that on average, Vietnamese firms have achieved high stock returns in the
period from 2012 until now. The mean stock return (RET) is 1.7364 times, indicating that
a typical firm in exchange has 173.64 percent increase in price on average in the examining
period. However, the standard deviation of stock return equals 149.29 percent which is very
large, showing that the variation of stock return (RET) is significant among sampled firms.
The values of maximum and minimum return also show the differences among stock
returns, the highest return is 611 percent which can be considered an extraordinary
performance in over three and a quarter years. Meanwhile, some stocks result in negative
return in the same period and the minimum is about -36.53 percent.
Table 4.1: Descriptive statistics of Model 1

Observations Mean Median Maximum Minimum Std. Dev.
RET 94 1.7364 1.4867 6.1154 -0.3653 1.4929
OWN 94 0.2554 0.2228 0.4900 0.0034 0.1642
BUY 94 0.1068 0.0549 1.4811 0.0011 0.1757
SELL 94 0.0668 0.0355 0.4004 0.0002 0.0772
LAR 94 2.2660 2.0000 7.0000 0.0000 1.8031
MEM 94 0.3404 0.0000 1.0000 0.0000 0.4764
STRA 94 0.1915 0.0000 1.0000 0.0000 0.3956
Source: The author’s calculation
For the sample of 94 firms, the mean of foreign ownership proportion (OWN) equals 25.54
percent, and range from 0.34 percent to 49 percent (the limited ownership level for foreign
investors). This amount does not represent for the average foreign ownership of the whole
population of nearly 700 companies, which is lower than 25.33 percent because many
small-cap and one-force dominant firms in stock exchange have been removed in sample
selection process. The standard deviation of OWN is 16.42 percent, which is
understandable because of the large variation of foreign ownership among firms.
33
With regards to the variables related to foreign investor trading activities, the sample mean
of BUY and SELL equal 0.1068 and 0.0668 respectively, showing that on average, in the
examined period, the percentage of total buying volume and total selling volume over the
total day-trading volume of a stock equal 10.68 percent and 6.68 percent respectively. It
can also be said that foreign investors accounted for 10.68 percent in buying activities and
6.68 percent in selling activities on average in Vietnam stock exchange. The standard
deviation is 17.57 percent for BUY and 7.72 percent for SELL. The maximum value is
148.11 percent for BUY (which is of Bibica’s Stock, coding BBC, this amount including
put through transaction (transaction made through negotiation) and 40.04 percent for SELL.
For the variables related to foreign ownership characteristics, the author explains
descriptive data of LAR, MEM and STRA. The mean of LAR is 2.266, indicating that in
average each firm in sample has 2.266 large foreign shareholders which own more than 3
percent of total shares. The value of LAR range from 0 to 7. The mean value of two dummy
variables MEM and STRA equal 0.3404 and 0.1915 respectively, implying that the number
of companies which do not have foreign member in management board and strategic
foreign shareholder, out-weights the number of companies have one of those two
characteristics.
Table 4.2 presents the correlation matrix of stock return and foreign ownership’s factors
showing how each pair of variables moves in relation to each other. This can be considered
a basic test for the suitability of the model. The high level of correlation between two
variables (higher than 0.8) indicates the evidence for the strong multicollinearity which will
make one variable being excluded. From this table, the direction that any two variables
move together, the strength of correlation (correlation coefficient, denoted by r), and the
level of statistical significance can be interpreted. The stars denote the correlation that is
statistically significant at significance level α = 0.01, α = 0.05, or α = 0.1.
34
Table 4.2: Correlation Matrix of Model 1

RET OWN BUY SELL LAR MEM STRA
RET 1.0000
OWN 0.2792*** 1.0000
BUY 0.2009* 0.2643 1.0000
SELL -0.1180 0.1626 0.4470*** 1.0000
LAR 0.1360 0.6836*** 0.1112 0.1836* 1.0000
MEM 0.1439 0.5526*** 0.1382 0.0832 0.1814* 1.0000
STRA 0.2608** 0.4896*** 0.1276 -0.0976 0.1389 0.6774*** 1.0000
(*** significant at 0.01; ** significant at 0.05; * significant at 0.1)
Source: The author’s calculation
The correlations between stock return (RET) and foreign ownership level (OWN) and
between RET and foreign strategic shareholder (STRA) are moderate with the correlation
coefficients (r) of 0.28 and 0.26, relatively. This means the level of foreign ownership and
the presence of foreign strategic shareholder are positively correlated the return of stocks,
at a moderate level.
Stock return (RET) has a positive correlation with daily buying level of foreign investors
(BUY), the number of large foreign shareholder (LAR) and the presence of foreigner in
management board (MEM). However, the correlation coefficients for these relationships
are quite low (0.04 with BUY, 0.14 with LAR and 0.1 with MEM). Stock return (RET) also
correlated slightly with daily selling level of foreign investors (SELL), but with negative
sign and the value of correlation coefficient is -0.12. The opposite signs between correlation
coefficients of BUY and SELL with RET are reasonable according to the supply-demand
effects. This indicates that although the correlations are quite small, BUY and SELL still
have certain level of impacts to the return of stocks (RET).
The study observes the correlation of other pairs of variables. OWN is highly correlated
with LAR, MEM and STRA with r of 0.68, 0.55 and 0.49, respectively. This can be
explained by the ownership contribution of large foreign shareholders, strategic foreign
investor and the power to choose a representative in management board when they have
high ownership proportion inside a company.
35
BUY and SELL are moderately correlated with r of 0.447. The rationale for this is that buy
side and sell side of foreign investors intentionally increase and decrease their ownership
in listed firms depending on many factors such as company prospect, industry condition
and some big changes in company’s operation. Therefore, throughout the 3 years period,
the BUY and SELL scale do not have too large difference, because the foreign investors
could flexibly change the role from net purchaser to net seller depending on situation which
can possibly change even after few months.
MEM and STRA have high correlation with r of 0.68. All firms which have strategic foreign
shareholder let a representative from that institution to participate in management board.
However, not all firms which have foreigners in BOD have a strategic foreign shareholder.
The author notices that the relationship between RET and OWN is statistically significant
at 0.01, between RET and STRA is statistically significant at 0.05 level. The relationship
between OWN and three other independent variables including LAR, MEM, STRA is
statistically significant at 0.01, which are similar to the relationship between BUY and
SELL, MEM and STRA.
4.2. Regression results
This study presents analysis of the impacts of foreign investors to stock performance and
uses stock return as a proxy to clarify if the relationships between the characteristics of
foreign investors and stock return truly exist and in which specific directions.
4.2.1. The Model 1 – the six factors model
The author runs regression model of RET on all identified independent variables.
Table 4.3: Regression result of Model 1 with six independence variables

Dependent Variable: RET
Method: Least Squares
Sample: 1 94
Included observations: 94
Variable Coefficient Std. Error t-Statistic Prob.
C 1.2832*** 0.2865 4.4786 0.0000
36
OWN 2.3141 1.6096 1.4377 0.1541

BUY 2.0065** 0.9696 2.0694 0.0415
SELL -4.5390** 2.2163 -2.0480 0.0436
LAR -0.0188 0.1204 -0.1566 0.8759
MEM -0.3717 0.4589 -0.8099 0.4202
STRA 0.6288 0.5343 1.1770 0.2424
R-squared 0.1695 Prob(F-statistic) 0.0112
Adjusted R-squared 0.1122 S.D. dependent var 1.4929
Source: Author’s calculation
The p-value of the resulted model equals 0.0112 showing that the model is statistically
significant. The R-squared equals 0.1695 which is quite small but can be accepted because
the model is testing using cross sectional data. According to a scientific material of Cengage
Learning Inc., in social sciences, low R-squared in regression model is not uncommon,
especially for cross-sectional data analysis. This paper states that a low R-squared does not
necessarily mean that an OLS regression model is invalid. It still possibly indicates that
Model 1 is a good estimate of the ceteris paribus relationship between foreign investor
characteristics and stock return. The magnitude of R-squared does not affect directly on the
whether the estimates is true or not.
The R-squared in Model means that the model can explain 16.95 percent of the variation of
stock return. However, four of six independent variables are not statistically significant
because of required p-value level violation including OWN (p-value=0.1541), LAR (p-
value=0.8759), MEM (p-value=0.4202) and STRA (p-value=0.2424). The original
regression model only accepts the relation of two independent variables with stock return
(RET). They are BUY and SELL with p-value of 0.0415 and 0.0436, respectively, which
are both statistically significant at 0.05 level. Besides, the model indicates that in opposite
direction, SELL has larger effect on RET than BUY and this will be interpreted in the
completed model. This model does not work right as the previous expectation of the author.
The reason mays come from the high correlation between some pairs of variables, including
relation between OWN and LAR, MEM, STRA; between MEM and STRA. However, the
p-value of LAR and MEM at the model above are very high, meaning that it is very difficult
37
for them to have significant impacts on stock’s return (RET), even when the author makes
additional regression model to clarify them.
Testing for model mis-specification
The author uses Ramsey RESET test (Ramsey, 1969) for model mis-specification. It detects
whether non-linear combinations of the fitted values help explain the dependent variable.
Table 4.4: Ramsey test result for Model 1

Ramsey RESET Test Equation: UNTITLED
Specification: RET C OWN BUY SELL LAR MEM STRA
Omitted Variables: Powers of fitted values from 2 to 3
Value Df Probability
F-statistic 1.2578 (2, 85) 0.2895
Likelihood ratio 2.7416 2 0.2539
The null hypothesis (H0) is that non-linear combinations of the explanatory variables do
not explain the dependent variable, or the model is correctly specified.
The test results in a large p-value of 0.2895. This indicates that the Ramsey test does not
reject the null hypothesis, or the conclusion of Ramsey test is that the model is correctly
specified.
Testing for heteroskedasticity
The model assumes that the errors are uncorrelated and their variances are constant. The
heteroskedasticity testing using White test (White, 1980) helps to detect if this assumption
is violated. The null hypothesis (H0) is that the model does not have heteroskedasticity.
Table 4.5: White test result for heteroskedasticity of Model 1

Heteroskedasticity Test: White
F-statistic 0.5589 Prob. F(24,69) 0.9437
Obs*R-squared 15.2997 Prob. Chi-Square(24) 0.9117
Scaled explained SS 22.7990 Prob. Chi-Square(24) 0.5317
38
The p-value of this test is 0.9437 which is too large to reject the null hypothesis, meaning
that there is no heteroskedasticity in the model.
Excluding invalid variables
The two variables LAR and MEM are excluded from the model because they are not
statistically significant factors. The rationale for excluding LAR (the number of large
foreign shareholders, which are usually institution) is due to the conflict of interest between
this foreign group and the domestic shareholder group. A typical example for this occasion
is the case of Vicostone (VCS). Vicostone used to be a good and well-managed company
in Vietnam, but from 2011, when many investment funds become shareholder of Vicostone
because of its prospect, they have same interest, and the shareholder’s conflict insides
Vicostone begins. While the group of large foreign shareholders continuously request
company to pay high dividend, set the high plan and accept to let four representatives to
participate in the company BOD, the domestic management group of Vicostone pay more
attention to the long-term prospect of company. This intensive conflict led to the poor
performance of Vicostone in 2012 and 2013 and the situation only becomes better when
the foreign investors group leaves company in 2014 after the chairman gained the dominant
power over Vicostone.
Similarly, the independent variable MEM also do not have enough evidence of a strong
influence of foreign members in BOD on the company performance and stock return. Many
companies with foreigner inside management board achieved great success business result
such as Mobile World Investment Corporation (MWG), the retail company which has ex-
CEO of Best Buy in its BOD now becomes one the highest growth companies in stock
exchange. However, in many other cases, the foreigner member in BOD usually represent
for the interest of a large foreign institutional shareholder or himself in company. The
mindset of Vietnamese managers in many companies are far different than foreign
businessman, especially in state-owned firms. In another hand, foreigner members do not
count for the major number in BOD, therefore their opinions and recommendations have
low weight in BOD final decisions.
39
The companies which possibly experience the above situation in stock exchange can be
listed as Gemandept JSC (GMD), Thu Duc Housing Development and Investment JSC
(TDH), Phu Nhuan jewelry JSC (PNJ)….
Detecting multicollinearity
Next, the author determines the multicollinerarity between STRA and OWN by running an
additional regression model to test how OWN is influenced by STRA. This regression
results in a statistically significant influence of STRA on OWN. The p-value equals 0.0000
and the R-squared is relatively high (23.97 percent) Therefore, the result confirms that there
is multicollinearity between OWN and STRA. Both OWN and STRA possibly have
influence on RET which can be used in two separately model. The reason for this is because
strategic shareholders usually hold from 10 percent to 30 percent of total shares of a listed
firm, while the maximum room for foreign investors is just 49 percent, therefore the
existence of a foreign strategic shareholder in a company also means that company has a
high foreign ownership proportion.
Table 4.6: Multicollinearity test for OWN and STRA

Dependent Variable: OWN
Sample: 1 94
C 0.2165 0.0165 13.1099 0.0000
STRA 0.2032*** 0.0377 5.3857 0.0000
4.2.2. The Model 2a – the first three factors model
The author then runs the next regression model with three selected independent variables
including foreign ownership level (OWN), the daily buying level (BUY) and the daily
selling level (SELL) of the foreign investors.
40
Table 4.7: Regression result of Model 2a

Sample: 1 94
C 1.2635*** 0.2819 4.4819 0.0000
OWN 2.3299** 0.9147 2.5473 0.0126
BUY 2.1717** 0.9429 2.3032 0.0236
SELL -5.2991** 2.0983 -2.5254 0.0133
The p-value of the model equals 0.0016, meaning that the model is statistically significant
at 0.01 level. R-squared equals 0.1552, demonstrating that the three independent variables
(BUY, SELL and OWN) can explain 15.52 percent of the variation of the stock return of
listed companies in sample. The p-value in regression on RET of SELL (0.0133), OWN
(0.0215) and BUY (0.025) are all significant at 0.05 level. This leads to the first satisfied
formula for the influence of foreign investors on stock return. The coefficient of the
intercept is 1.2635, OWN is 2.3299, of BUY is 2.1717 and of SELL is -5.2991, which are
consistent with the directions that the author expected on OWN, BUY and SELL.
The standard errors of variables in this regression model are moderate, equals 0.9147 for
OWN, 0.9429 for BUY and 2.0983 for SELL, respectively. The coefficient level of OWN
indicates that it has stronger effect on stock return than BUY, but lower SELL when each
independent variable change one percent in value.
According to the coefficient value, the effect of foreign daily buying level (BUY) on stock
return (RET) is not as significant as that of foreign daily selling level (SELL). The
coefficient of SELL is nearly double the coefficient of BUY. This can be explained by the
theories of behavioral psychology in investing and trading, which state that the negative
reasons will result in bad effect at larger magnitude than the good effect causing by the
41
positive reasons, of the same absolute value. For example, an investor who suffers a loss of
1 percent will have bigger mental effect (feeling anguished in this case) than when he
realizes a gain of 1 percent (feeling happy).
The first formula of the influence of foreign investor activities and characteristics on stock
return (RET) including foreign ownership level (OWN), foreign daily buying level (BUY)
and daily selling level (SELL) over daily total trading volume, is presented below.
Formula 1: RET= 1.2635 + 2.3299*OWN + 2.1717*BUY – 5.2991*SELL + u
With the 15.52 percent explanatory power, the result can be interpreted as below:
 If the current proportion of foreign ownership (OWN) in a firm equals zero and firm’s
stock does not have any foreign investor trading activities since 2012, the average stock
return is 126.35 percent.
 An one percent increase of foreign ownership proportion (OWN) results in a 2.3299
percent increase of stock return (RET).
 An one percent increase of the percentage of average daily foreign investor buying
volume over average daily total trading volume of a stock (BUY) results in a 2.1717
percent increase in stock return (RET).
 An one percent increase of percentage of average daily foreign investor selling volume
over average daily total trading volume of a stock (SELL) results in a 5.2991 percent
decrease in stock return (RET).
Follow the similar process of prior section, the Ramsey RESET test is conduct to detect
model mis-specification. The null hypothesis (H0) is that model is correctly specified. The
Ramsey test result does not reject the null hypothesis due to the high p-value of 0.2701. In
other words, the model does not bear mis-specification issue.
Table 4.8: Ramsey test result for Model 2a

Ramsey RESET Test
Equation: UNTITLED
Specification: RET C OWN BUY SELL
42

Value df Probability
F-statistic 1.3288 (2, 88) 0.2701
Likelihood ratio 2.7967 2 0.247
Testing for heteroskedasticity
The author assumes the null hypothesis (H0) is that the model has no heteroskedasticity.
The author then uses the Heteroskedasticity White test and finds no evidence of
heteroskedasticity in model because of the high p-value (0.9152). The null hypothesis (H0)
is not rejected.
Table 4.9: White test result for heteroskedaticity of Model 2a

Heteroskedasticity Test: White
F-statistic 0.4304 Prob. F(9,84) 0.9152
Obs*R-squared 4.1436 Prob. Chi-Square(9) 0.9017
Scaled explained SS 6.1616 Prob. Chi-Square(9) 0.7236
4.2.3. The Model 2b – the second three factors model
Similarly, the author runs another regression model on three independent variables
including the presence of foreign strategic shareholder (STRA), the daily buying level
(BUY) and the daily selling level (SELL) of the foreign investors.
Table 4.10: Regression result of Model 2b

Sample: 1 94
C 1.6253*** 0.2114 7.6869 0.0000
STRA 0.7714** 0.3790 2.0353 0.0448
BUY 2.3214** 0.9496 2.4448 0.0164
43
SELL -4.2591* 2.1544 -1.9769 0.0511

The p-value of this model is only 0.0046 meaning that the model is statistically significant
at 0.01 level. The R-squared of 0.1341 is also high enough to be accepted. This indicates
that there are 13.41 percent of the variation of the outcomes can be explained by this model.
The p-value of STRA (0.0448) and BUY (0.0164) in regression with RET are both
statistically significant at 0.05 level, while the p-values of SELL (0.0511) is also
statistically significant but only at 0.1 level. The coefficient of the intercept is 1.6253, of
STRA is 0.7714, of BUY is 2.3214 and of SELL is -4.2591. One noted point is about the
coefficient of STRA (dummy variable) which equals 0.7714, meaning the presence of
foreign strategic shareholder can make stock return in the examining period being
significant higher than normal with 77.14 percent difference.
In order to define whether this model is valid or not, besides looking at p-value of model,
the author uses necessary test to detect potential errors.
The null hypothesis of this test is that the model is correctly specified. The Ramsey Test
result of the Model 2b has low p-value (0.0856, lower than 0.1) which indicates that the
null hypothesis (H0) is rejected. In another words, the model is mis-specified and invalid.
Table 4.11: Ramsey test result for Model 2b

Ramsey RESET Test Equation: UNTITLED
Specification: RET C STRA BUY SELL
Value df Probability
F-statistic 2.5277 (2, 88) 0.0856
Likelihood ratio 5.2508 2.0000 0.0724
44
4.3. Summary of Regression results
In summary, after running three regression models, the author finds that only the Model 2a
satisfies the hypotheses, in which the three identified statistically significant factors of
foreign investors that affect stock return (RET) are Foreign ownership level (OWN), Daily
buying level (BUY), and Daily selling level (SELL) of foreign investors.
Table 4.12: Regression results summary

Model 1 Model 2a Model 2b Sign
C 1.2832 1.2635 1.6253 +
OWN 2.3141 2.3299** +
BUY 2.0065** 2.1717** 2.3214** +
SELL -4.5390** -5.2991** -4.2591* -
LAR -0.0188 -
MEM -0.3717 -
STRA 0.6288 0.7714** +
p-value 0.0112 0.0016 0.0046
R-squared 0.1695 0.1552 0.1341
Validity Valid Valid Invalid (mis-specified)
Source: Author’s summary
The key findings of the study are:
 Foreign ownership level and Daily buying level of foreign investors have positive
significant impact on stock return.
 Daily selling level of foreign investors has negative impacts on stock return with
significant higher magnitude than daily buying level.
 The number of large foreign shareholders and the presence of foreigners in BOD do not
affect stock return.
 The presence of foreign strategic shareholders might have a positive effect on stock
return but this relationship is not supported by sufficient evidence.
45
CHAPTER 5: RESULT DISCUSSION USING PRACTICAL

EVIDENCES
This section discusses the regression result and its accuracy using practical examples and
evidences related to this study.
5.1. Stock return and foreign ownership level
The regression result of Model 2a investigates a positive impact of foreign ownership level
on stock return. The evidence of stocks in reality also support strongly for this result. The
table 5.1 below shows the overall 3 years performance of listed companies and their stocks
which have foreign ownership over 45 percent (maximum is 49 percent).
have the room of foreign ownership over 45 percent
No. Stock Company’s name Market cap Sale Net income Stock
Code (billion dong) growth growth return
1 VNM Vinamilk 105,067 61.72% 43.85% 154%
2 DHG Hau Giang 7,714 57.11% 28.43% 129%
Pharmaceutical
3 BMP Binh Minh Plastic 3,661 32.25% 27.95% 253%

4 VSC Vietnam Container 1,710 38.35% 29.84% 228%
5 FPT FPT Corp 16,786 28.67% -0.03% 81%
6 DMC Domesco Medical 1,071 31.27% 65,38% 254%
Import Export
7 IMP IMEXPHARM 1,375 15.59% 10.57% 136%

8 BBC Bibica 910 12.6% 24.57% 481%
9 REE REE Corp 6,854 45.25% 100.07% 224%
11 PNJ Phu Nhuan Jewelry 3,402 -48.79% -5.68% 69%

12 HCM Ho Chi Minh 4,034 73.12% 93.81% 253%
Securities
46
13 TCM Thanh Cong Textile 1,555 17.18% 50.36% 428%

14 JVC Japan Vietnam 1,294 52.56% 31.9% 126%
Medical Instrument
15 ST8 Sieu Thanh 330 57.52% 58.96% 340%
16 CTD COTECONS 3,144 69.28% 69.43% 195%
17 PAN Pacific Across 2,295 365.82% 673% 421%
18 PVI PetroVietnam 4,216 -31.26% -19.81% 24%
Insurance
19 TDH Thu Duc House 671 6.62% 14.41% 82%
20 TRA TRAPHACO 1801 55.22% 64.37% 299%
21 VNS VINASUN 2,319 65.79% 135.3% 306%
Average 50.29% 75.33% 224.2%
VN-Index 55.92%
(Note: Data of market-cap and stock return in three years are taken at 3rd April 2015)
Source: Author’s collected information
The table 5.1 indicates a surprising truth that the average 3 years return of 21 stocks in the
table is nearly 4 times higher than the average return of the whole market, which is
represented by the return of VN-Index. The amount 224.2 percent of group’s stock return
is also much higher than the mean of stock return of the examining sample (173.64 percent).
This strengthens the study’s result of a positive impact of foreign ownership level on stock
return because in the sample, the average foreign ownership proportion is only 25.54
percent. If an individual investor invests 1,000 USD in each stock of this list to form a
portfolio of 21 stocks with total purchasing value of 21,000 USD, he will have over 68,000
USD portfolio after only 3 years and a quarter, equivalent with a 43.61 percent yearly
return. This means by only using passive investing strategy in a portfolio of stocks which
have very high foreign ownership level, investors can get an extraordinary return in long-
term.
47
5.2. Stock return and daily buying and selling level of foreign investors
As mentioned above, the trading activities of foreign investors have significant influences
to the whole market and to each individual stock. It can be seen that Vietnam stock market
has two clear waves in 2014, one from the beginning of the year to middle of May with the
peak at Mar 24th. Another one happened in the time left of 2014 with the peak at Sep 3rd. A
recognizable situation in these two waves is that foreign investor class bought net massively
at the beginning and at the end of each wave, and sold net with a bit smaller but significant
scale in the areas around the peak. As the result, although the overall return of VN-index in
2014 is only approximately 7 percent, foreign investors is supposed to gain a huge profit
due to buy low and sell high strategies. The Figure 5.1 below shows the trading activities
of foreign investors in HOSE in the examining period. The grave bar in the time axis
represent for the strong buy period of foreign investors in HOSE.
Figure 5.1: VN-index and foreign investor trading activities from 1/1/2012 to 3/4/2015
In the perspective of judging foreign investor influence, it is clear to see that in the period
foreign investors buy stocks strongly, the market index decline trend is often slowed down
and after a short time, the index goes up sharply while foreign investors keep buying
continuously. Otherwise, when foreign investors stop buying but selling or staying out, VN-
index often falls down significantly. The similar phenomenon usually happens in the
transaction and performance of many particular individual stocks such as HPG, PVD,
48
GAS… This supports the findings that buying and selling level of foreign investors have
an positive and negative influence on stock return, respectively.
A critical question raised from the situation above is that whether foreign investors cause
the trends of the stocks or they act prior to the trends of the stocks. For the first statement,
the regression result has shown evidence that foreign investor activities have a certain
influence level to the trends of the stocks, not at all, due to statistically significant of p-
value and the low level of R-squared. However, this study does not specify the second
statement, which is left for further research.
5.3. Stock return and the presence of foreign strategic shareholder
Although the existence of the mis-specification in the regression Model 2b which include
the presence of foreign strategic shareholder, there are many cases that prove the great value
a strategic foreign shareholder can bring to a firm, by far boost the stock price up.
Using an example of a new listed company, Mobile World Investment Corporation

(MWG), this is the largest technical device retailer in Vietnam, with market-capitalization
over 600 million USD. MWG established in 2004 with only few small stores in Ho Chi
Minh City. However, in 2007, Mekong Capital, a foreign fund which focuses on investing
in Vietnam private-equity firms, participated in MWG business with the role as its strategic
shareholder with ownership of approximately 35 percent of total share. After that, thanks
for the capital contribution of Mekong Capital and their network with many experienced
managers around the world, MWG has achieved a massive growth from 2008 up to now.
MWG has overcome many existed retailers in the market to dominate mobile retailing
industry with over 30 percent market share in 2014.
Following the similar approach with the analysis of foreign ownership level, the author
examines the list of 19 companies which have strategic foreign shareholder in their
ownership structure.
49
have a foreign strategic shareholder
No. Stock Company’s name Market cap Sale Net income Stock
Code (bn dong) growth growth return
1 API APEC Investment 372 38.27% -81.93% 464%
2 BMI Bao Minh Insurance 1,261 25.72% 17.58% 153%
3 BMP Binh Minh Plastic 3,661 32.25% 27.95% 253%
4 HBC Hoa Binh Construction 1,061 15.15% -51.75% 130%
& Real Estate
5 PXS Petroleum Equipment 960 57.62% 14.17% 242%
Assembly & Metal
Structure
6 DMC Domesco Medical 1,071 31.27% 65,38% 254%
Import Export
7 SII Sai Gon Water 1,372 -31.8% 29.46% 156%
Infrastructure
8 BBC Bibica 910 12.6% 24.57% 481%
9 REE REE Corp 6,854 45.25% 100.07% 224%
11 SSI Sai Gon Securities 7,147 84.5% 841.27% 128%
12 HCM Ho Chi Minh Securities 4,034 73.12% 93.81% 253%
13 TCM Thanh Cong Textile 1,555 17.18% 50.36% 428%
14 JVC Japan Vietnam Medical 1,294 52.56% 31.9% 126%
Instrument
15 ST8 Sieu Thanh 330 57.52% 58.96% 340%
16 CTD COTECONS 3,144 69.28% 69.43% 195%
17 PAN Pacific Across 2,295 365.8% 673% 421%
18 PVI PetroVietnam Insurance 4,216 -31.3% -19.81% 24%
19 VNR Vietnam National 3,080 60.13% 13.68% 285%
Reinsurance
Average 54.17% 111.34% 253%
VN-Index 55.9%
Source: Author’s collected information
50
It is noted that 11 companies in the list of table 5.1 also appears in table 5.2, which present
the group of companies having a foreign strategic shareholder. This is a practical evidence
for the multicollinearity between two variables foreign ownership level (OWN) and the
presence of foreign strategic shareholder (STRA).
The table provides a far surprising result than the Table 5.1. The average return of stocks
in this table achieves 253.2 percent, around 4.5 times higher than the return of VN-index.
This shows that the participation of foreign strategic shareholder possibly has significantly
positive effect on the performance of stock price, measured by stock return, similarly with
the prior prediction of the author. However, the regression result indicates that this
relationship is invalid due to model mis-specification. The contradiction of practical
evidence and regression result implies a limitation on the scale of data sample, which makes
study results being less accuracy.
51
CHAPTER 6: CONCLUSION
6.1. Summary the main findings of the study
This study examine the influences of foreign investors on stock return of listed companies
in Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) from 1/1/2012
to 3/4/2015. The study uses a data sample of 94 listed firms which have been filtered by the
studied preferences of foreign investors and other factors aimed for excluding the potential
outliers. Those preferences are large scale, high liquidity and non-dominant. The Ordinary
Least Squares (OLS) Method is used to regress the stock return with six independent
variables including foreign ownership level, daily buying and selling level of foreign
investors, the number of large foreign shareholder, the presence of foreigner in BOD and
foreign strategic shareholder.
The study has several strengths which make it become valuable. Firstly, one of the best
important points of this research is its pioneer in the field of studying about foreign investor
influences in Vietnam stock market. Secondly, in global scale, besides many existing
researches, this study uses a new way to measure the foreign investor trading level in
examining its impact on the return of listed stocks. The author has used the percentage of
average daily buying and selling level over the average of total daily trading volume, in the
same period, in order to measure the difference of the impacts of foreign investor buying
and selling activities. Thirdly, this study has used a sample of market data which is carefully
selected through a set of criteria. This data is more reliable than financial statement
information which are easier to manipulate by the issuer. Finally, this study discovers the
securities investment field, which is related to millions of individual investors. From the
results, this study can help individual investors to aware of one such important force in
exchange and suggest to them several useful investing strategies based on analyzing
characteristics of foreign investors.
The regression process reveals several predicted results which are the positive impacts on
stock return of foreign ownership level and daily buying level of foreign investors, while
the daily selling level of foreign investors showing a negative impact on stock return.
However, unpredicted results in this study are the statistically insignificant p-value of the
number of large foreign shareholder and the presence of foreigner in BOD. In one of two
52
alternative regression model, the presence of foreign strategic shareholder indicates a

statistically significant p-value, but the Ramsey test rejects the hypothesis that model is
specified. One noted finding is that the foreign investors selling level has significant larger
impact magnitude than the level of their buying activity.
About indirect affecting variables which are all rejected in regression models, the number
of large foreign shareholder and the presence of foreigner in BOD have no relationship with
stock return because these two factors sometimes cause conflicts of interest and decision
making inside the firms. On another hand, the presence of foreign strategic shareholder can
bring great positive value for most of the firms they participate in, which have been proved
by practical evidences. However, there is mis-specification when regress this variable to
stock return which possibly implies that the sample-size is not large enough for using linear
regression.
In general, the author can conclude that in a particular group of stocks which satisfy the
preferences of foreign investors, foreign investors can impact significantly on the stock
return through investing and trading activities. Firstly, by investing, foreign investors raise
their ownership level in the firm to higher percentage, up to 49 percent as regulated in
Vietnam. The particular examples indicates that the level of foreign ownership well
represents for the level of advantage holding by the firm. The advantage of the firm in turn
brings to firm an optimistic prospect. This leads to the positive relationship between foreign
ownership level and stock return. Secondly, the movements of foreign investors in stock
exchange can be considered as the signs of future business performance or the change in
risk level. These contribute to the change in the perspective about company’s risks of
domestic investors, leading to the rise in stock price after a sequence of foreign net buying.
6.2. Applications of the research findings
One of the objective of this study is to investigate the possible investing strategies by
analyzing foreign investor characteristics. After revealing the relationship between foreign
investors and stock return, the author suggest several investing strategies for individual
investors as follow:
53
Table 6.1: Investing strategies applying research findings
No. Facts and Strategies Indicator
1 Foreign investors tend to buy prior to an uptrend and sell prior Daily net
to a downtrend (mid-term trend last in months) purchase of
foreign
Action: (1) Starting to Buy in the downtrend when seeing a clear
investors
sequence of foreign net purchase for one to two weeks with
significant value. The trough could be made soon. (2) Starting
to Sell in the uptrend when the reversely situation happens.
2 The average return of stocks which have very high foreign Foreign
ownership level is extraordinary. ownership
level (in
Action: Forming an equally-weighted investing portfolio consist
percentage)
of stocks which have foreign ownership percentage is at
maximum level or higher than 45 percent (or at least 40 percent).
6.3. Limitations of the study
Besides the strengths, this study still has several limitations which are hard to reduce within
stock market of Vietnam.
Firstly, the data sample of the study only includes 94 listed companies in Vietnam, which
is not large enough to exclude the effect of the outliers. This number is also small compared
to some international researches that consist of thousands of firms across nations.
Secondly, the cross-sectional data is one disadvantage of the study, which results in a quite
low explanatory power. This is reasonable because the stock return is the dependent
variable that affected by hundreds other factors.
Although these limitations can reduce the value of this study, the pioneering and the
findings are still deserve to be recognized. Moreover, all the drawbacks of this study can
be fixed in the further researches.
54
6.4. Suggestions for further research

 Further studies can be made in a larger scale to broaden the data sample, for example
the impacts of foreign investors on stock return in emerging market.
 Future research can improve the accuracy of study by measuring the variables in year-
by-year basis, not the current reported number.
 Future researchers can discover deeply the influence of foreign strategic investor on
firm’s performance and stock return, since there is many examples of the positive role
of foreign strategic investor in Vietnam, but this study regression model only finds little
evidence. In case, the examining period should be long enough, from five to seven years,
in order to measure the long-term effect. The method should focus on the determining
the difference between firm before and after having foreign strategic shareholder.
55
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Kalev, P., Nguyen, A. & Oh, N. (2006) Foreign versus Local Investors: Who Knows More?
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57
APPENDIX A
List of stocks selected in data set
Stock
No. Industry Company name
code
Binh Chanh Construction Investment Shareholding
1 BCI
Company
2 C21 CENTURY 21 JSC
3 CII Ho Chi Minh City Infrastructure Investment JSC
4 CTD Cotec Construction JSC
Dat Xanh Real Estate Service And Construcstions
5 DXG
Corporation
FeCon Foundation Engineering And UnderGround
6 FCN
Construction JSC
7 FLC FLC Group JSC
8 HBC Hoa Binh Construction & Real Estate Corporation
9 HDG Ha Do JSC
10 Real Estate HTI Idico Infrastructure Development Investment JSC
11 and HUT Tasco JSC
Construction KinhBac City Developement Share Holding
12 KBC
Corporation
13 KDH Khang Dien House Trading and Investment JSC
14 LHG Long Hau Corporation
15 NBB NBB Investment Corporation
16 NTL Tu Liem Urban Development JSC
Petroleum Equipment Assembly And Metal
17 PXS
Structure Joinstock Company
SACOM Development And Investment
18 SAM
Corporation
19 SII Sai Gon Infrastruction Real Estate Investment JSC
Song Da Urban & Industrial Zone Investment and
20 SJS
Development JSC
58
21 TDH Thu Duc Housing Development Corporation

Vietnam Construction and Import - Export Joint
22 VCG
Stock Corporation
23 VIC VinGroup JSC
Vietnam Electricity Construction Joint-stock
24 VNE
Corporation
25 VPH Van Phat Hung Corporation.
26 HPG Hoa Phat Group JSC
27 HSG HOASEN Group
Construction
28 KSB Binh Duong Mineral And Construction JSC
Materials
29 NBC Vinacomin - Nui Beo Coal JSC
30 NKG Nam Kim Steel JSC
31 API Asia - Pacific Investment JSC
32 BMI BaoMinh Insurance Corporation
33 BVS Bao Viet Securities JSC
34 HCM Ho Chi Minh City Securities Corporation
Finance
35 PVI PVI Holdings
36 SSI SaiGon Securities Inc.
37 VND VNDIRECT Securities Corporation
38 VNR Vietnam National Reinsurance Cooporation
39 AAA An Phat Plastic and Green Environment JSC
40 BBC Bibica Corporation
41 KDC Kinh Do Corporation
42 BMP Binh Minh Plastics Joint-stock Company
43 LIX LIX Dettergent JSC
44 Manufacturing DHC Dong Hai JSC of Bentre
45 DQC Dien Quang JSC
46 DRC Da Nang Rubber JSC
47 MSN Masan Group Corp
48 HAI H.A.I JSC
49 RAL Rang Dong Light Sources and Vacuum Flask JSC
59
50 REE Refrigeration Electrical Engineering Corporation

Thanh Cong Textile Garment Investment Trading
51 TCM
JSC
52 TNG TNG Investment And Trading JSC
53 TTP Tan Tien Plastic Packaging JSC
54 VNM Vietnam Dairy Products JSC
55 BHS Bien Hoa Sugar JSC
56 DBC Dabaco Group
57 HVG Hung Vuong Corporation
58 GDT Duc Thanh Wood Processing JSC
59 NHS Ninh Hoa Sugar JSC
60 Agriculture PAN Pan Pacific Corporation
61 SBT Société De Bourbon Tay Ninh
62 SEC Gia Lai Cane Sugar Thermoelectricity JSC
63 TTF Truong Thanh Furniture Corporation
64 VHC Vinh Hoan Corporation
65 HAG HAGL JSC
66 DVP Dinh Vu Port Investment And Development JSC
67 GMD Gemadept Corporation
Logistics
68 TCL Tan Cang Logistics And Stevedoring JSC
69 VSC Viet Nam Container Shipping JSC
70 CMG CMC Corporation
Electronics Communications Technology
71 ELC
Investment Development Corporation
Service
72 FPT FPT Corporation
73 PET Petrovietnam General Services Js Corporation
74 VNS Vietnam Sun Corporation
Foreign Trade Development And Investment
75
FDC Corporation Of Ho Chi Minh City
Trading
Binh Thanh Import - Export Product and Trade
76
GIL Joint Stock Co
60
77 KHA Khanh Hoi Import Export JSC

78 PNJ Phu Nhuan Jewelry JSC
79 ST8 Sieu Thanh JSC
80 SVC Sai Gon General Service Corporation
81 DCL Cuu Long Pharmaceutical Joint Stock Corporation
82 DHG DHG Pharmaceutical Joint – Stock Company
Domesco Medical Import - Export Joint Stock
83
DMC Corporation
84 IMP Imexpharm Pharmaceutical JSC
85 Medical and JVC Japan Vietnam Medical Instrument JSC
86 Pharmaceutical TRA Traphaco JSC
87 CNG CNG Vietnam JSC
88 PGD Petro Vietnam Low Pressure Gas Distribution JSC
89 PGS Petro Vietnam Low Pressure Gas Distribution JSC
90 PVC Drilling Mud Corporation
91 PVD PetroVietNam Drilling and Well Services JSC
92 SBA Song Ba JSC
93 SJD Can Don Hydro Power JSC
94 Energy VSH Vinh Son - Song Hinh Hydropower JSC
61
COMMENTS
62
INTERSHIP REPORT ASSESSMENT
Signature of supervisor

The Impacts of Foreign Investors On Stock Return: An Empirical Study in Vietnam

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The Impacts of Foreign Investors On Stock Return: An Empirical Study in Vietnam

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1

TABLE OF CONTENTS ................................................................................................... 1

3.3. Model development ............................................................................................. 29

HNX Hanoi Stock Exchange

OLS Ordinary Least Squares

JSC Joint Stock Company

FII Foreign Indirect Investment

FPI Foreign Portfolio Investment

Table 3.1: Classified data sample .................................................................................... 26

Table 3.2: Variable description and denotation ............................................................ 27

Table 4.1: Descriptive statistics of Model 1 .................................................................... 32

Table 4.2: Correlation Matrix of Model 1 ...................................................................... 34

Table 4.4: Ramsey test result for Model 1 ...................................................................... 37

Table 4.5: White test result for heteroskedasticity of Model 1 .................................... 37

Table 4.6: Multicollinearity test for OWN and STRA .................................................. 39

Table 4.7: Regression result of Model 2a ....................................................................... 40

Table 4.8: Ramsey test result for Model 2a .................................................................... 41

Table 4.9: White test result for heteroskedaticity of Model 2a .................................... 42

Table 4.10: Regression result of Model 2b ..................................................................... 42

Table 4.11: Ramsey test result for Model 2b ................................................................. 43

Table 4.12: Regression results summary ........................................................................ 44

Table 6.1: Investing strategies applying research findings........................................... 53

Figure 1.2: Market capitalization of HOSE throughout the years .............................. 11

1.2. Research Background

Figure 1.1: Foreign Indirect Investment (FII) from 1991 to 2014

2008-2011: over 1.2

1.3. Research objective and process

This study examines a sample of 94 Vietnamese listed companies, categorized in 10

enough to conduct research with classified 10 industry categories, proportionally satisfied

1.4. Overall research findings and potential contributions

CHAPTER 2: DEFINITIONS AND LITERATURE REVIEW

2.1. Definitions and related terminologies

2.1.1. Foreign portfolio investor

In general, Foreign Indirect Investors is the investors, including individuals or institutions,

2.1.2. Stock return

According to www.investopedia.com, this is a common term refers the gain or loss of a

2.1.3. Foreign ownership level

2.1.4. Foreign investor trading volume

2.1.5. Large foreign shareholder

2.1.6. Foreign member in BOD

2.1.7. Strategic foreign shareholder

According to www.businessdictionary.com, strategic investor is individual or firm that

2.2. Previous studies’ findings and methodologies

2.2.1. Foreign investor preferences

2.2.2. Foreign investor’s informational asymmetry

2.2.3. Foreign investor’s portfolio performance

2.2.4. Foreign investor impacts

FOit = αt + βtXit + εit

CHAPTER 3: RESEARCH METHODOLOGY

Selecting Sample & Variables

Constructing Regression models

3.1. Data selection

Table 3.1: Classified data sample

3.2. Variable’s selection and description

3.3. Model development

1. Foreign ownership level - OWN

2. Daily buying level of foreign investors - BUY

3. Daily selling level of foreign investors - SELL

4. The number of large foreign shareholder - LAR

5. The presence of foreigner in BOD (dummy) - MEM

6. The presence of foreign strategic shareholder (dummy) – STRA

RETi = α + β1OWNi + β2BUYi + β3SELLi + β4LARi + β5MEMi + β6STRAi + ε

CHAPTER 4: RESEARCH FINDINGS

Formula 1: RET= 1.2635 + 2.3299OWN + 2.1717BUY – 5.2991*SELL + u