Stock-market efficiency in thin-trading markets: the case of the Vietnamese stock market

Abstract

This article reviews developments in the Stock Trading Centre (STC) in Ho Chi Minh City, Vietnam, the main stock market in the country, since its start in 2000. It presents information about developments in the number of stocks traded, trading activity and stock-price developments. This article focuses on the question whether the market is weak-form efficient. An important element of the investigation concerns the possible bias of the results caused by the thin trading that characterizes the STC. Stock-market returns are corrected for this. The main conclusion is that the STC is not efficient in the weak form.

Notes

¹ According to the weak form of the EMH, a market is efficient if current prices fully reflect all information contained in past prices (Fama, 1970). It implies that past prices cannot be used as a predictive tool for future stock price movements and hence it is not possible for a trader to make abnormal returns by only using the past history of prices.

² There is a discrepancy between the time span of the data used in the more descriptive Sections II and III, where we like to mention the latest available data, and in the later sections of this article, the formal empirical testing is reported (data period 2000–2004).

³ Own-account trading is defined as buying and selling activities of securities for the securities companies’ own account.

⁴ The listed companies are required to disclose information within 24 h if, e.g., a significant change in conditions of its business activities occurs; if it suffers from a loss equivalent to or more than 10% of its equity; if there is a change in the firm's business strategy or other important decisions on business activities are taken, such as major investments in other firms or in fixed assets; and if the company falls into bankruptcy, or makes a decision on corporate merger, acquisition, split or dissolution. A company also has to disclose information if it signs a loan agreement or issues bonds, which is worth 30% or more of its equity; if it changes the Chairperson of the Board of Directors, or more than one-third of the members of the Board of Directors, or its Director (General Director); if a share split occurs, if it issues bonus shares or shares for paying dividends, which is worth more than 10% of the equity and if it applies for de-listing. Finally, the disclosure obligation concerns the suspicion of involvement in criminal acts, like violation of tax laws, of directors, supervisors, managers or the chief accountant.

⁵ As of 25 June 2001, only six joint-stock companies with a total capital of VND 360 044 million (USD 22.87 million) had their stocks listed at the STC.

⁶ The full firm names corresponding to the abbreviated firm names are given in Table 2.