Trading behaviours during stock market bubbles: evidence from Vietnam

ABSTRACT

We study investors’ trading behaviours during bubbles on the Vietnam stock market. Vietnam offers a great setting due to its high susceptibility to bubbles and large heterogeneity among various groups of investors. We document evidence of trading explosions during two bubbles identified in our sample period, followed by reversions in the aftermath. Financial sectors make a significant contribution to this phenomenon in both episodes. We also find that foreign and sophisticated investors increase their holdings when the bubbles form and start selling well before the bursts, suggesting their superior ability to local individuals in timing the market.

KEYWORDS:

• Stock market
• bubble
• trading behaviour

JEL CLASSIFICATION:

• G12
• G14
• G41

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Connected investors are typically family members of inside managers or board members. They are probably less informed than the insiders, but less naive than an average individual investor. We expect that an average individual investor would perform even worse than these connected individuals.

² See https://www.bloomberg.com/news/articles/2018-04-26/asia-s-top-stock-market-of-2018-set-to-be-world-s-worst-in-april.

³ We obtain even stronger results when including changes in exchange rate in the model with the first lagged net purchases by foreign investors predicting return significantly at the 5% level.

⁴ This is consistent with the conjecture of Froot, O’Connell, and Seasholes (2001) that in emerging markets, where diversity of foreign investors is more limited, foreign investors are more likely to trade with local investors rather than with each other.

Additional information

Funding

This research is funded by Vietnam Ministry of Education and Training (MOET) under grant number [B2022-NTH-03].