Abstract

 
 
 This study aims to examine the relevance of foreign ownership to stock return volatility in the Vietnam stock market over ten years (2008 - 2017). After applying the fixed effects regressions and the extended instrumental variable regressions with fixed effects, we find that foreign ownership decreases the volatility of stock returns. However, the stabilizing impact of foreign ownership on stock return volatility becomes weaker in large firms since the coeffcient of the interaction term between firm size and foreign ownership turns out to be significantly positive. The estimated results remain robust when we use the future one-year volatility, other than the current one, as an alternative measure of the dependent variable.
 
 
Highlights
Foreign ownership has gradually become an inevitable trend in the era of international economic integration, in which stock markets play a supporting role in promoting foreign capital investments into domestic companies (Foong & Lim, 2016)
The paper process is as follows: In Section 2, we review the impact of foreign ownership on stock return volatility in the Vietnam stock market and the destabilizing influence of firm size
By allowing foreign investors to participate in the Vietnam stock market under Decision No 238/2005/QD-TT and relaxing foreign ownership rules to attract capital and support local companies under Decree No 60/2015/ND-CP, the Vietnam stock market has witnessed a significant inflow of foreign investments
Summary
Foreign ownership has gradually become an inevitable trend in the era of international economic integration, in which stock markets play a supporting role in promoting foreign capital investments into domestic companies (Foong & Lim, 2016). Attracting foreign investors is considered to widen the investor base for a stock, which leads to greater risk-sharing and lowers volatility (Mitton, 2006; Wang, 2007). It is an investor base-broadening effect which is identified by Merton (1987). Foreign investors usually choose well-managed companies to invest, and this should further accelerate improvement in corporate governance (Leuz et al, 2009). Another explanation is that foreign investors will appoint representatives or seek experts to coordinate and monitor corporate governance. Another explanation is that foreign investors will appoint representatives or seek experts to coordinate and monitor corporate governance. Min and Bowman (2015) believe that foreign investors place considerable merit on the appointment of independent directors in the firms listed on the Korea Exchange
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