Abstract
For the first time, the market efficiency is examined in the different context of the stock market. By employing tests of weak-form efficiency, this study finds out that the overall, Vietnamese stock market does not follow a random walk regardless of the degree of stock market volatility. Therefore, technical analysis could be used by investors and financial managers to forecast price and gain profits on the market. Another finding is that although the Vietnamese market is not weak-form efficient, there is an improvement in recent years. The paper suggests that if investors and financial managers can employ past returns to predict stock prices and make decisions on the Vietnamese market, they should change their strategies in the future. This finding also contributes to studies on the Efficient Market Hypothesis in emerging countries and its performance in different economic contexts.
Highlights
The Efficient Market Hypothesis (EMH) concerns about the relationship between information and security prices, which influences the process of predicting future prices
There are three main points is concluded about the Vietnamese stock market
All tests for the full period between 2000:07 and 2019:06 illustrate that the daily VN-Index does not follow a random walk. This finding is consistent with the results of researches by Claessens et al (1995) and Chaudhuri and Wu (2003) in developing countries. Under both under both homoscedastic and heteroscedastic assumptions, despite several evidences supporting the efficiency in some periods, in general, there is positive relationship between past returns and future returns
Summary
The Efficient Market Hypothesis (EMH) concerns about the relationship between information and security prices, which influences the process of predicting future prices. The EMH determines whether security prices can be forecasted by different types of information or not. This theory is important for both investors and financial managers. Fama (1965) introduced the concept of the EMH for the first time with the random walk theory of stock price behaviour He made two assumptions underlying the market efficiency: (1) independent successive price changes, (2) the probability distribution of price changes. After researching the actions of “sophisticated traders”, Fama (1970) developed the random walk theory to the EMH In this case, all sophisticated traders attempt to trade to gain above-average returns, leading to the fact that anomalies are widely acquired by rational investors. All sophisticated traders attempt to trade to gain above-average returns, leading to the fact that anomalies are widely acquired by rational investors. Malkiel (2003) approved this theory, he said that when all investors tends to trade to earn this excess returns, anomalies are eliminated and the market will become increasingly efficient
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