The role of investor behavior in emerging stock markets: Evidence from Vietnam

• Published in: The Quarterly review of economics and finance 2023-02, Vol.87, p.367-376
• Main Authors: Phan, Thi Nha Truc, Bertrand, Philippe, Phan, Hong Hai, Vo, Xuan Vinh
• Format: Article
• Language: English
• Subjects: Economics and Finance; Foreign investors; G12 G14 G40; Humanities and Social Sciences; Individual investors; Investor behavior; Investors sentiment; Stock return; Vietnam stock market
• ISSN: 1062-9769; 1878-4259
• DOI: 10.1016/j.qref.2021.07.001

•We investigate the link between investor sentiment and stock return.•We use the context of Vietnam stock market.•We use PCA to construct an investment sentiment indicator.•We find a negative link between investor sentiment and stock return. Exloring the role of different types of investors on stock market is crticial since different types of investors react and behave differently when making investment decision. The role of investor behavior is a very important issue in an immature stock market like Vietnam stock market because the market is characterized by a large number of individual investors and low reporting standard. Institutional and foreign investors however play an influential role due to their large exposure and strong investment expertise. Clearly, examining the role of investor behavior and its impact on the stock market in Vietnam is an important topic in finance. A significant body of empirical research has shown that investor behavior is an essential factor to explain stock price that the classical financial theory cannot explain. This research examines the role of investor behavior in stock market by examining the relationship between investor behavior and stock return using the Vietnamese stock exchange data. We create a sentiment index using the principal components analysis (PCA). Consistent with the sentiment and stock return literature, the research shows a negative contemporaneous relationship between investor sentiment and market return.