MINISTRY OF EDUCATION & TRAINING STATE BANK OF VIET NAM BANKING UNIVERSITY OF HO CHI MINH CITY - TRẦN ĐẶNG CẨM TÚ THE IMPACT OF LIQUIDITY ON STOCK RETURNS: AN EMPIRICAL INVESTIGATION OF THE BANKS LISTED ON VIETNAM STOCK EXCHANGE GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 7340201 Ho Chi Minh City, 2021 MINISTRY OF EDUCATION & TRAINING STATE BANK OF VIET NAM BANKING UNIVERSITY OF HO CHI MINH CITY - TRẦN ĐẶNG CẨM TÚ THE IMPACT OF LIQUIDITY ON STOCK RETURNS: AN EMPIRICAL INVESTIGATION OF THE BANKS LISTED ON VIETNAM STOCK EXCHANGE GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 7340201 SUPERVISOR NGUYỄN DUY LINH, PhD Ho Chi Minh City, 2021 NHẬN XÉT CỦA GIẢNG VIÊN HƯỚNG DẪN TP.HCM, ngày … tháng … năm 2021 Giảng viên hướng dẫn TS Nguyễn Duy Linh NHẬN XÉT CỦA HỘI ĐỒNG XÉT DUYỆT KẾT LUẬN: (đánh dấu X vào ô chọn) Duyệt thông qua Không thông qua Ý kiến đề nghị: TP.HCM, ngày … tháng … năm 2021 Hội đồng xét duyệt i ABSTRACT The paper examines the relationship between liquidity and stock returns in the Vietnam stock market of 18 banks having trading time in the period from 2010 to 2020 and listed on Ho Chi Minh City Stock Exchange (HOSE), Hanoi Stock Exchange (HNX) and Unlisted Public Company Market (UPCOM) The author applied quantitative research, then tested and identified the impact of liquidity on stock returns The result of the paper indicated that there has a positive connection between liquidity and stock returns The study introduces various regressions and uses turnover to measure liquidity The data was annual data for traded shares, outstanding shares, and monthly data for stock prices In the end, the author would give some recommendations for banks listed on the Vietnam stock market; State administrators; and investors ii COMMITMENT I hereby declare that this thesis “The impact of liquidity on stock returns: An empirical investigation of the banks listed on Viet Nam Stock Exchange” is my own research work, completed from a rigorous working process under the guidance of Dr Nguyen Duy Linh The research results are honest, no content has been copied and the entire content in this thesis has not been published anywhere The data and citations in the thesis are clearly and transparently annotated I take full responsibility for my commitment Ho Chi Minh city, 2021 Author Trần Đặng Cẩm Tú iii ACKNOWLEDGEMENTS First of all, I cannot express enough thanks to my teacher, Dr Nguyen Duy Linh, for supporting and encouraging me throughout the thesis process Next, my completion of this project could not have been accomplished without the support of professors at Banking University of Ho Chi Minh city for giving me opportunities to improve my skills and providing me with knowledge about this topic Finally, with all love and gratefulness from me to my family and my friends who have always encouraged me during this time With the effort and enthusiast to complete the thesis, but because of the research time-limited, the paper could not avoid shortcomings, I hope to be received your comments and contributions so that the topic would be completed and perfect Thank you sincerely Ho Chi Minh city, 2021 Author Trần Đặng Cẩm Tú iv TABLE OF CONTENTS ABSTRACT i COMMITMENT ii ACKNOWLEDGEMENTS iii TABLE OF CONTENTS iv LIST OF ACRONYMS viii LIST OF TABLES ix CHAPTER INTRODUCTION 1.1 Why this topic? 1.2 Research objectives and questions 1.2.1 Overall research objectives 1.2.2 Specific research objectives 1.2.3 Research questions 1.3 Scope 1.4 Research subject 1.5 Research methodology 1.5.1 The theoretical framework 1.5.2 Data collection methods 1.5.3 Data processing methods 1.6 A framework of the research process 1.7 Contribution of the research v 1.7.1 Literature contribution 1.7.2 Practical contribution 1.8 The composition of the thesis CHAPTER LITERATURE REVIEWS 2.1 Liquidity 2.2 Stock liquidity 2.3 Stock returns 12 2.4 How is liquidity measured? 13 The turnover rate 14 2.5 The relationship between liquidity and stock returns 15 2.6 Other factors affecting stock returns 16 2.6.1 Firm size 17 2.6.2 Book-to-market 18 2.6.3 Beta 19 2.7 Theoretical framework and empirical review 20 2.7.1 Theoretical framework 20 Efficient market hypothesis (EMH) 20 Trading quantity theory 21 Trading cost theory 22 2.7.2 Empirical review about the effect of liquidity on stock returns 22 Research hypothesis 24 vi CHAPTER RESEARCH METHODOLOGY AND DATA 26 3.1 Research design 26 3.2 Data collection methods 26 3.3 Research scope 27 3.4 The basics of variable selection 27 Dependent variable RETURNit 27 Independent variables 27 CHAPTER RESEARCH RESULTS AND DISCUSSION 30 4.1 Descriptive statistics 30 4.2 Correlation of variables 31 4.3 Regression results 32 Model selection tests 33 4.4.1.Heteroskedasticity phenomenon 35 4.4.2.Autocorrelation phenomenon 35 4.4.3.Collinearity phenomenon test 36 CHAPTER CONCLUSIONS AND RECOMMENDATIONS 39 5.1 Conclusions 39 5.2 Recommendations 39 5.2.1 For investors 39 5.2.2 For banks listed on the Vietnam stock market 41 5.2.3 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Military Commercial Joint Stock Bank NVB National Citizen Commercial Joint Stock Bank SHB Saigon - Hanoi Commercial Joint Stock Bank STB Saigon Thuong Tin Commercial Joint Stock Ban TCB Vietnam Technological and Commercial Joint Stock Bank TPB Tien Phong Commercial Joint Stock Bank VBB Vietnam Thuong Tin Commercial Joint Stock Bank VCB Joint Stock Commercial Bank for Foreign Trade of Vietnam VIB Vietnam International Bank VPB Vietnam Prosperity Joint Stock Commercial Bank 55 Appendix 2: Descriptive statistic Appendix 3: Correlation matrix 56 Appendix 4: Regression of the model with dependent variable R following Pooled OLS, FEM, REM POOLED OLS FEM 57 REM 58 Appendix 5: Model selection test Pooled OLS, FEM, REM F-test Breusch-Pagan Appendix 6: White test 59 Appendix 7: Wooldridge test Appendix 8: Collinearity 60 Appendix 9: FGLS method ... administrators; and investors ii COMMITMENT I hereby declare that this thesis ? ?The impact of liquidity on stock returns: An empirical investigation of the banks listed on Viet Nam Stock Exchange? ?? is... liquidity and stock returns in the Vietnam stock exchange Vo Xuan Vinh and Jonathan Batten (2010), and Nguyen Anh Phong (2012) can be seen as the pioneer researchers of this topic in Vietnam They... data of banks listed on the Vietnam stock market and apply quantitative analysis to investigate this relationship With the result of this paper, the thesis hopefully can contribute to the stock