Foreign Investors and Stock Price Crash Risk: Evidence from Vietnam

• DOI: http://doi.org/10.1111/irfi.12248
• Author: Xuan Vinh Vo
• Published date: 01 December 2020
• Date: 01 December 2020

Foreign Investors and Stock Price

Crash Risk: Evidence from Vietnam

XUAN VINH VO

†,‡

†

Institute of Business Research, University of Economics Ho Chi Minh City, Ho Chi

Minh City, Vietnam and

‡

CFVG Ho Chi Minh City, University of Economics Ho Chi Minh City, Ho Chi Minh

City, Vietnam

ABSTRACT

Examining stock price crash risk in emerging economies is important since

emerging equity markets are characterized by excessive volatility and weak

corporate governance. This paper investigates the association between for-

eign ownership and crash risk using a data sample of firms listed on the Ho

Chi Minh City Stock Exchange over the period 2007–2015. Employing a

number of econometric techniques for panel data analysis, the paper shows

that foreign investors are positively associated with future stock price crash

risk. Importantly, this finding highlights the critical problem of information

asymmetry in emerging markets. This paper has strong implications for port-

folio investment and risk management. The paper is also relevant for finan-

cial market supervisory body in maintaining safe and sound financial

markets.

JEL Codes: G10; G12; G14

Accepted: 29 October 2018

I. INTRODUCTION

Stock price crash risk is a complicated subject in finance because there are two

distinct characteristics of stock returns: the variance of conditional volatility

and the fat tailed distribution of the return series (Bates 2012). A thorough

understanding of stock price crash risk is critical for different stakeholders in

portfolio investment, risk management, and prudential supervision. Hence,

stock price crash risk has been a critical subject which draws strong interest

from financial economists (Kim et al. 2016). Recent global financial crisis also

highlights the importance for further studies on stock price crashes. In particu-

lar, investors, regulators, and policy makers have particular attention to the

determinants of stock price crash risk (Xu et al. 2013). Importantly, stock price

crash risk is more profound in emerging economies because emerging equity

markets are characterized by excessive volatility.

This paper explores the impact of foreign ownership on future stock price

crash risk in emerging markets. In particular, we analyze this link using the

© 2018 International Review of Finance Ltd. 2018

International Review of Finance, 20:4, 2020: pp. 993–1004

DOI: 10.1111/irfi.12248