How do investors price stocks?—Evidence with real‐time data from Vietnam

• DOI: http://doi.org/10.1002/ijfe.1693
• Published date: 01 April 2019
• Date: 01 April 2019
• Author: Hoang Nguyen,Hao Quach,Linh Nguyen

RESEARCH ARTICLE

How do investors price stocks?—Evidence with real‐time

data from Vietnam

Hao Quach

1

| Hoang Nguyen

2

| Linh Nguyen

1

1

Department of Accounting, Finance and

Economics, Lincoln International

Business School, University of Lincoln,

Lincoln, UK

2

Department of Finance and Economics,

Merrick School of Business, University of

Baltimore, Baltimore, MD, US

Correspondence

Hao Quach, Principal Lecturer/

Programme Leader in Banking and

Finance, Department of Accounting,

Finance and Economics, Lincoln

International Business School, University

of Lincoln, Lincoln, UK.

Email: hquach@lincoln.ac.uk

Abstract

Our paper employs a data set that comprises real‐time data, which, in our

study, is defined as the best known data available to investors at the time of

making decision. The research was inspired by comments by industry leaders

at an international conference in finance in Vietnam in 2016, basically imply-

ing that academic research findings were not useful to investors because they

had not done in the way that investors think and do. Drawing on an alike

experiment study using real‐time data for a period from October 2010 to April

2014, our paper documents that the value and liquidity effect do not exist in

Vietnam, and the size effect is weak. Specifically, we find that growth and

high‐liquidity stocks outperform and do not find strong evidence for the

outperformance of small stocks. This finding contradicts the general literature,

which suggests that value, low liquidity, and small stocks outperform but sup-

ports similar contradicting findings for emerging markets. The findings from

our research are important to investors in Vietnam market because they are

drawn on the decision‐making basis that investors in this market normally

do. Our research findings also suggest the use of a multifactor pricing model

that is relevant for valuing stocks in Vietnam. In addition, to check the reliabil-

ity of our data set and the robustness of our conclusions, we repeated the same

procedure using two samples of historical data and compared with results from

our data. The additional analysis confirms the reliability of our data and

findings.

KEYWORDS

Asset pricing, pricing model, risk factors, stock returns, stock valuation, Vietnam

1|INTRODUCTION

A huge volume of research papers have been devoted to

understanding how stocks are priced. Various factors

have been reported to play a significant role in pricing

stock returns. Among the most common factors are size,

value, and liquidity. Seminal works suggest that small

stocks (e.g., Banz, 1981; and Basu, 1983), value stocks

(e.g., Ball, 1978; Basu, 1977; Stattman, 1980; or and

Rosenberg, Reid, & Lanstein, 1985), and low‐liquidity

stocks (e.g., Amihud & Mendelson, 1986) outperform

because investors require higher returns to compensate

for higher risks resulting from holding small size, high

book to market/low price to earnings and illiquid

stocks.

Follow‐on empirical research findings are mostly

unanimous. For example, researchers find that value

stocks, as shown by low price to earnings (e.g., Jaffe,

Received: 28 February 2018 Revised: 20 July 2018 Accepted: 10 September 2018

DOI: 10.1002/ijfe.1693

828 © 2018 John Wiley & Sons, Ltd. Int J Fin Econ. 2019;24:828–840.wileyonlinelibrary.com/journal/ijfe