ABSTRACT
The objective of this article was to evaluate the effect of announcements of financial regulation on risk and return in the Vietnamese equity market. The techniques used for the purpose of analysing risk and return include event study and non-parametric tests, as well as asset pricing models supplemented with interaction variables and a variety of ARCH-like specifications such as GARCH, TARCH, EGARCH and PARCH. We find evidence for the wealth effect, the presence of delayed response and a risk shifting behaviour in the form of diamond risk structure. Our results show that abnormal returns are present around the announcements of operating rules and other stock market regulations. Abnormal returns can also be obtained after considering legal documents such as circulars and decisions.
Acknowledgement
We are grateful to an anonymous referee for useful comments.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 Doi Moi – Vietnam reform of 18 December 1986 is also known as the ‘innovation’ period of economic reforms.
2 On the concept of the financial Kuznets curve, see Moosa (Citation2016).
3 These regulations were predominantly issued by the Vietnamese Government, Ministry of Finance (MOF), State Securities Commission (SSC) and the Vietnam tax office.
4 See, for example, http://www.moj.gov.vn/vbpq/en/pages/vbpq.aspx.
5 Grace, Rose, and Karafiath (Citation1995) use the stock market to measure the wealth effect of California Proposition 103. Fields et al. (Citation1990), Szewczyk and Varma (Citation1990) and Shelor and Cross (Citation1990) also examine the wealth effect of Proposition 103 and reach conflicting conclusions.
6 These results are not reported here but the tables are available upon request from the corresponding author.
7 The TARCH, EGARCH and PARCH models are available from the corresponding author upon request.
8 Ramiah, Martin, and Moosa (Citation2013) point out that when there is a debate around a piece of legislation, the diamond risk shape appears. For instance, when legislation is introduced, some market participants believe that it would cause an increase in risk while others hold the opposite view. When the same legislation is rejected subsequently, there is a reversal of risk from the two kinds of market participants.