1

Stock Prices and Macroeconomic Variables in Vietnam:

An Empirical Analysis

Nguyen Trong Hoai1

Nguyen Thi Bao Khuyen2

The article employs the cointegration and error correction version of Granger
causality tests to investigate whether the Vietnamese stock market exhibits the
publicly informational efficiency. The test results strongly suggest informational
inefficiency in the Vietnamese stock market. Specifically, the results from
bivariate analysis suggest that the Vietnamese stock market is not informationally
efficient in both short- and long-run. In addition, the stock market seems to even
divorce from the most part of the economy. Therefore, it is still possible for a
professional trader to make abnormal returns by analyzing good or bad news
contained in some macroeconomic variables. The findings re-assure that the
Vietnamese stock market is not well functioning in scarce resource allocation and
not attractive enough to encourage foreign investors. Since the market is not
informationally efficient, especially with respect to monetary variables, it may be
dangerous for policy makers to realize the role of monetary policies, especially
the so-called demand stimulus packages. In terms of the investors point of view,
fundamental analysis is still significant for their investment decisions. Thus,
companies with strong equity analysts would have higher comparative
advantages in this inefficient market. Furthermore, instead of becoming more
efficient over time, as one might expect, the Vietnamese stock market appears to
have become increasingly divorced from reality. This also reveals that the last
financial crisis has serious impact on the Vietnamese stock market.

1. Introduction
Efficient market hypothesis has been at the center of debates in financial
literature for several years. The term efficiency is used to describe a market in
which all relevant information is immediately impounded into the price of
financial assets. If the capital market is sufficiently efficient, investors cannot
expect to achieve superior profits from their investment strategies. As a result,
capital asset pricing models could be useful for various investment decisions. In
the economic perspective, the efficient market is even more important because it
implies that the stock market is well functioning in scarce resource allocation.
However, this is not always the case, especially in the emerging stock markets.

1
Professor of economics, University of Economics, Ho Chi Minh City, Vietnam; Dean, Faculty of
Development Economics, University of Economics, Ho Chi Minh City, Vietnam.
2
Senior Analyst, VietFund Management Company, Vietnam.
 2

Islam and Khaled (2005) calls developing countries as capital starved

economies, so efficient allocation of scarce resources and encouragement of
private foreign investment are both of vital importance. They also stated that the
success of an increasing privatization of these economies will depend crucially
on the presence of an active and efficient stock market. Indeed, rational investors
expectedly drive their investments into the most profitable projects, given
acceptable risks. The efficient market can address the mixed feelings problem,
which investors are always skeptical about the intrinsic value of any stock under
consideration. This may lead their decisions based on others. In other words, this
phenomenon is commonly considered as herding behavior. For foreign investors,
inefficient markets are usually equivalent to high risky markets when making
their investments abroad. Hence, they tend to apply higher hurdle rates, which in
turn underestimate investment opportunities in developing countries. Eventually,
its hard for any developing country with inefficient/weak stock market to attract
foreign portfolio investment flows.

The efficient market hypothesis is theoretically viewed in three common

forms, depending on the kind of available information embodied. These are
commonly classified into weak-form, semi strong-form, and strong-form
efficiency. The weak form is the lowest form of efficiency that defines a market
as being efficient if current prices fully reflect all information contained in past
prices only. The semi-strong form efficiency suggests that the current price fully
incorporates all publicly available information. Semi-strong efficiency requires
the existence of market analysts who are not only financial economists able to
comprehend implications of vast financial information, but also
macroeconomists, experts adept in understanding processes in product and input
markets (Ross et al., 2006). The strong form efficiency states that the current
price fully incorporates all existing information, both public and private (also
called inside information). The main difference between the semi-strong and
strong efficiency hypotheses is that, in the latter, nobody should be able to
systematically generate profits even if trading on information not publicly known
at the time. The rationale for strong-form market efficiency is that the stock
market anticipates, in an unbiased manner, future developments and therefore the
stock prices may have incorporated all relevant information and evaluated in a
much more objective and informative way than the insiders. According to Ross et
al. (2006), a very strong assumption of this form is that inside information cost is
always zero. However, this assumption hardly exists in reality, so the strong form
efficiency is not very likely to hold.

Despite its impressive growth, the Vietnamese stock market is really

struggling with various typical weaknesses of an emerging market (Truong,
2006). As a result, trading behavior in the Vietnamese stock market may be much
different from that in developed/newly emerging stock markets. Investors,
especially those who have just experienced the economic downturn, may base
their actions on the decisions of others who are well informed about market
developments by following the market consensus (Nguyen, 2009). Thus, the
 3

question is whether the Vietnamese stock market is informationally efficient?

And whether the market pattern is seriously affected by the financial crisis?

The mixed evidence from the study of Truong (2006) in the 2002-2004 period
may imply that the Vietnamese stock market is, to which extent, characterized by
the weak-form efficiency. However, this lowest form of efficiency cannot assure
the Vietnamese stock market is well functioning in scarce resource allocation and
attractive enough to encourage foreign investors (Nguyen, 2006). Both investors
and policy makers mostly concern if the current market prices reflect all publicly
available information, such as information on inflation, economic growth, money
supply, exchange rates, interest rates, annual earnings, stock splits, etc.

Ibrahim (1999) states that the significant lagged effects of macroeconomic

variables on stock prices indicate informational inefficiency of the stock market.
If this is the case, individual investors can earn abnormal profits by exploiting
past macroeconomic information. As a result, this exploitable opportunity would
seriously distort the markets ability to efficiently allocate scarce resources. The
reverse effects of stock prices on macroeconomic variables imply that stock
market movements anticipate future economic conditions. Accordingly, they may
be employed as a leading indicator in helping formulating current economic
stabilization policies. This article will investigate these dynamic interactions for
the case of the Vietnamese stock market.

The organization of the paper is as follows. The next section briefly reviews
the literature of semi-strong market efficiency. Then, Section 3 outlines the
analytical framework. Section 4 describes the data and examines their temporal
properties using integration and cointegration tests. Section 5 presents the results
of bivariate causality tests. Finally, our concluding remarks are contained in
Section 6.

2. Literature Review
Since its introduction into the financial economics literature over almost 50 years
ago, the efficient markets hypothesis has been examined extensively in numerous
documents. Most previous studies of semi-strong form efficiency have been
based on the analysis of the causal relationship between macroeconomic
variables and stock prices.

The types of relationships between stock market returns and macroeconomic

variables can be varied. As Mahdavi and Sohrabian (1991) report, there was an
asymmetric causal relationship between those variables when they explored the
relationship between changes in stock prices and GDP growth in the U.S markets
using the standard version of Granger causality tests. The stock market growth
rate caused GDP growth rate, yet no reverse causation was found. Chen (1991),
however, finds that the current and future economic growth could be revealed by
several domestic variables, such as the market dividend-price ratio, short-run
 4

interest rates, production growth rate, term premium, and the default premium. In
addition, Rousseau and Wachtel (2000) reveal that equity markets have been key
institutions in promoting real economic activity in 47 countries. However, it is
worth noting that this finding may be different in countries with less financially
developed markets (Minier, 2003).

Mauro (2003) suggests that the developments in stock prices should be taken
into account in forecasting output. However, the relationship between stock
returns and economic growth has not been stable over time (Stock and Watson
1990). Cheng (1995) argues that a number of systematic economic factors
significantly influenced the U.K stock returns. This result seems to contradict
with that of Poon and Taylor (1991) who also observe the interrelationship
between macroeconomic factors and stock prices in the United Kingdom.

The relationship between stock prices and economic activity is not only
limited to the relationship between stock prices and economic growth, but also
extends to other economic factors (Fama, 1981). Abdullah and Hayworth (1993)
argue that stock returns are positively related to inflation and growth of the
domestic money supply in the United States, but negatively related to domestic
interest rates. By the same manner, Beenstock and Chan (1988) find that interest
rates, input costs, money supply, and inflation are the significant risk factors of
the London stock market.

For the Pacific region, in Australia, there was a unidirectional relationship (in
negative fashion) between inflation and the nominal stock returns during the
1965-1979 period, with price levels leading the equity index (Saunders and Tress
1981). Other researchers (Leonard and Solt, 1987; Giovanini and Jorion, 1987;
Kaul and Seyhun 1990; Randal and Suk, 1999) also support a significant
relationship between inflation or expected inflation and stock market prices.

In terms of the relationship between stock market returns and exchange rate,
Johnson and Soenen (1998) state depreciation may cause the cost of imports to
increase, leading to domestic price level increases, which would expectedly have
a negative impact on stock prices. Morley and Pentecost (2000) also confirm that
stock markets and exchange rates are linked, and note that this connection is
through a common cyclical pattern rather than a common trend.

For the Asia-Pacific region, Hamao (1988) found a significant relationship

between the Japanese stock returns and several factors, such as the changes in
expected inflation and the term structure of interest rates. Ibrahim (1999) also
observed the Malaysian exchange rate by using bivariate and multivariate
cointegration as well as Granger causality tests and found cointegration when the
M2 measure of money supply and reserves are included, but no long-run
relationship between the exchange rate and stock prices was found using
bivariate models. These suggest that in the short run the exchange rate might play
 5

a significant role in the domestic economy, and that the Malaysian stock
exchange is informationally inefficient.

However, in some cases, macroeconomic factors cannot be reliable indicators

for stock market prices movement in the Asian markets because of the inability
of stock markets to fully capture information about the change in macroeconomic
fundamentals (as is cited in Wongbangpo and Sharma, 2002).

Ibrahim (1999) investigates the dynamic interactions between seven

macroeconomic variables (the industrial production index, consumer prices, M1,
M2, credit aggregates, foreign reserves and exchange rates) and the stock prices
for an emerging market, Malaysia, using Granger causality tests and error
correction mechanism tests. This analysis is conducted using monthly data series
for the period from January 1977 to June 1996. To smooth possible volatility, all
data series are expressed in logarithmic forms. Generally, the results suggest
informational inefficiency in the Malaysian market.

Using the bivariate causality tests, Ibrahim (1999) suggests three important
points. First, the results largely indicate that the lagged changes in
macroeconomic variables have no significant predictive ability for the
movements in stock prices. Second, the stock market movements could help
anticipate variations in the industrial production, the M1 money supply, and the
exchange rate. From this finding, he says that the causal link from stock prices to
the M1 money supply may reflect the importance of the stock market on the M1
money demand. Third, there exists the cointegration between the stock prices and
three macroeconomic variables consumer prices, credit aggregates and official
reserves. The results suggest that deviations from the equilibrium path are
adjusted by about 5%8% the next month through the movements in stock prices.
Thus, the adjustment toward the long-run relationship is extremely low in
Malaysian stock market.

Hanousek and Filer (2000) examine the possibility that newly-emerging

equity markets in Central Europe exhibit semi-strong form efficiency such that
no relationship exists between lagged values of changes in macroeconomic
variables (M1, M2, exports, imports, trade balance, foreign capital inflow, budget
deficit, government debt, CPI, PPI, exchange rate, and industrial production) and
changes in equity prices using Granger causality tests. They find that while there
are connections between real economy and equity market returns in Poland and
Hungary, these links occur with lags, suggesting the possibility of profitable
trading strategies based on public information and rejecting semi-strong
efficiency hypothesis. For Czech Republic and Slovakia, the situation is more
complex. In the early years of their existence, these markets may have possessed
elements of semi-strong efficiency, with both lagged and contemporaneous
relationships between real variables and equity markets. However, these links
have disappeared over time. In other words, these stock markets appear to have
become increasingly divorced from reality. In the same manner, Azad (2009)
 6

conducts a cross-market test including China, Japan, and South Korea and
concludes that while Chinese stock market is inefficient, Japanese and South
Korean stock markets are semi-strongly efficient. These empirical studies, along
with other studies about the U.S markets, suggest that developed equity and
newly-emerging stock markets exhibit semi-strong form efficiency, while this is
not a case in developing stock markets.

Atmadja (2005) examines the existence of Granger causality among stock

prices indices and macroeconomic variables in five ASEAN countries, Indonesia;
Malaysia; the Philippines; Singapore; and Thailand with particular attention to
the 1997 Asian financial crisis and period onwards. Using monthly time series
data of the countries, a Granger-causality test based on the vector autoregressive
(VAR) analytical framework was employed to empirically reveal the causality
among the variables. This research finds that there were few Granger causalities
found between the countrys stock price index and macroeconomic variables.
This indicates that the linkages between domestic stock price movements and
macroeconomic factors were very weak. Due to that, the ASEAN stock markets
were relatively unable to efficiently capture changes in economic fundamentals
during the observation period in most of the countries in accordance to the
literature in emerging stock markets, and that the influence of specific
macroeconomic factors on the domestic economies differ across countries. This
also implies that the stock markets do not seem to have played a significant role
in most countries economies, and macroeconomic variables are unlikely to be
appropriate indicators to predict not only the future behavior of other
macroeconomic variables, but also that of the stock market price indices.

While causality analysis is widely discovered in both developed and newly

emerging markets, only a few studies have been conducted for emerging markets
such as Vietnam. A recent notable study for the Vietnamese stock market is that
of Nguyen (2006). Applying the Engle-Granger cointegration tests, she find no
evidence for cointegration between the VN-Index and macroeconomic variables
such as industrial output, inflation rates, money supply, exchange rates, imports
and exports using data that span from July 2000 to June 2006. Based on these
findings, she concludes that the Vietnamese stock market is informationally
inefficient with respect to all selected macroeconomic variables.

In order to contribute to this line of literature for emerging markets, this paper
would like to extend existing studies on the informational efficiency of the
Vietnamese stock market on the following ways. First, we examine the market
efficient hypothesis using a wider range of macroeconomic variables3. In
particular, we use twelve macroeconomic variables, namely, consumer price,
industrial production, imports, exports, exchange rates, M1 money supply, M2
money supply, lending rates, deposit rates, domestic credit, foreign reserves, and

3
Because the time span is now longer than that of the previous study.
 7

money reserves. Second, we make every effort to compare the informational

efficiency situation of the Vietnamese stock market with that of other emerging
markets. Third, we will take the impact of the last financial crisis into account so
as to check the robustness of market efficiency exhibition.

3. Analytical Framework
The analytical framework of this paper is to employ the Granger causality tests.
In doing so, we will first examines whether the variables of concern are non-
stationary and cointegrated. As widely accepted, if all variables under
consideration are integrated of order 1, I(1), and they are not cointegrated, we
must apply the standard version of Granger causality test using the first
differences of the variables. If this is the case, we are just able to test whether the
stock market exhibits the short-run efficiency. By contrast, if the variables under
consideration are not only I(1), but also cointegrated, then we should employ the
cointegration and error correction (ECM) version of Granger causality tests.
According to Ihrahim (1999), the ECM conveniently combines the short-run
dynamics and long-run equilibrium adjustments of the variables. In the efficient
market hypothesis literature, this allows us analyse whether the stock market
exhibits both short-run and long-run efficiency.

3.1 Unit-Root Tests

In order to establish the order of integration of the variables concerned, this study
employs both augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root
tests. Generally, a variable is said to be integrated of order d, written by I(d), if it
turn out to be stationary after differencing d times. The variable is integrated of
order greater than or equal to 1 is non-stationary. According to Asteriou (2007),
most macroeconomic variables are cointegrated of order 1.

In testing for the existence of a unit root of the time series Yt (H0: = 0), we
can select one out of the following three possible forms of the ADF test:
p
Yt = Yt 1 + i Yt i + u t (1)
i =1

p
Yt = 0 + Yt 1 + i Yt i + u t (2)
i =1

p
Yt = 0 + 1T + Yt 1 + i Yt i + u t (3)
i =1

The difference between the three regressions concerns the presence of the
deterministic elements 0 and 1T. For choosing the best one among the three
equations, we will first plot the data (of each variable) and observe the graph
 8

because it can, to which extent, indicate the presence or not of deterministic

regressors. If the test equation is characterised by the serial correlation, the PP
test, conducted in a similar manner of ADF tests, becomes the most appropriate
alternative.

3.2 Cointegration Tests

One the order of integration of each variable is established, we then evaluate

whether the variables under consideration is cointegrated. According to Ibrahim
(1999), the cointegration of the time series such as the stock prices (Pt) and a
macroeconomic variable (Mt) suggests the existence of a long-run relationship
that constrains their movements. That is, although the variables are individually
nonstationary, they cannot drift farther away form each other arbitrarily.
According to Asteriou and Hall (2007), if two variables are non-stationary, then
we could normally expect that they would combine to produce another non-
stationary process. However, in the special case that two variables, say P and M,
are really related, we would expect the two stochastic trends could be very
similar to each other and the combination of them could eliminate the
nonstationarity. In this special case, we say that the variables are cointegrated. If
the variables do not cointegrate, we usually face the problems of spurious
regression and econometric work becomes almost meaningless (Granger and
Newbold, 1974). Inversely, if the stochastic trends do cancel to each other, then
we have cointegration. To test for cointegration, this paper employs the Engle
and Granger (1987) approach4. This can be briefly summarised as follows:

Step 1: Test the variables for their order of integration.

By definition, cointegration necessitates that the variables be integrated of the

same order. Thus the first step is to test each variable to determine its order of
integration. This study will apply the ADF tests. There are three possible cases:

a) If both variables are stationary (I(0)), it is not necessary to proceed since

standard time series methods (OLS) can be correctly applied.

b) If the variables are integrated of different orders, it is possible to conclude

that they are not cointegrated.

c) If both variables are integrated of the same order, then we proceed with
step two.

Step 2: Estimate the long-run (possible cointegrating) relationship.

4
The Johansen cointegration approach is also widely used in empirical studies.
 9

If the results of step 1 indicate that both Pt and Mt are integrated of the same
order (usually in economics I(1)), the next step is to estimate the long-run
equilibrium relationship of the form:

Pt = 1 + 2 M t + u t (4)

and obtain the residuals of this equation.

If there is no cointegration, the results obtained will be spurious. In this case,

we will apply the standard version of Granger causality tests for investigating
short-run efficicieny. However, if the variables are cointegrated, then OLS
regression yields super-consistent estimators for the cointegrating parameter
2 . In this case, we will apply the ECM version in order to analyse both short-run
and long-run efficiency.

Step 3: Check for (cointegration) the order of integration of the residuals.

In order to determine if the variables are actually cointegrated, denote the

estimated residual sequence from the equation by u t . Thus, u t is the series of the
estimated residuals of the long-run relationship. If these deviations from long-run
equilibrium are found to be stationary, the Pt and Mt are cointegrated. Because u t
is a residual, we do not include a constant nor a time trend in the ADF equation.

3.3 Standard Version of Granger Causality Tests

Engle and Granger (1987) developed a relatively simple test that defined
causality as follows: a (stationary) variable Pt is said to Granger-cause
(stationary) variable Mt, if Pt can be predicted with greater accuracy by using
past values of the Mt variable rather than not using such past values, all other
terms remaining unchanged.

The standard version of Granger causality test for the two stationary variables
Pt and Mt, involves as a first step the estimation of the following VAR model:

r s
Pt = a 1 + i Pt i + j M t j + pt (5)
i =1 j=1

p q
M t = a 2 + i M t i + j Pt j + mxt (6)
i =1 j=1

where it is assumed that both pt and mt are uncorrelated white-noise error terms.
In this model, we can have the following different cases:
 10

Case 1: The lagged M terms in (5) may be statistically different from zero as a
group, and the lagged P terms in (6) not statistically different from
zero. In this case, we have that Mt causes Pt.

Case 2: The lagged P terms in (6) may be statistically different from zero as a
group, and the lagged M terms in (5) not statistically different from
zero. In this case, we have that Pt causes Mt.

Case 3: Both sets of P and M terms are statistically different from zero as a
group in (5) and (6), so that we have bi-directional causality.

Case 4: Both sets of P and M terms are not statistically different from zero in
(5) and (6), so that Pt is independent of Mt.

According to Hanousek and Filer (2000), a market is semi-strongly efficient, if

two following conditions must hold. First, a contemporaneous relationship must
exist between stock prices (Pt) and macroeconomic variable (Mt). Second,
lagged values of M must not be enabling a potential investor to predict current
returns (Pt) in the market (Case 2 or Case 4). Both of these relationships are
important. Although the first is often ignored in empirical research, if it fails to
hold, then the fact that the second does is not proof of efficiency. It may simply
be that the variable under examination is irrelevant in determining prices in the
equity market. These relationships can be expressed as follows:
r
Pt = 0 + i Pt i + t (7)
i =1

r
Pt = 0 + i Pt i + 0 M t + t (8)
i =1

and
r s
Pt = 0 + i Pt i + 0 M t + j M t j + t (9)
i =1 j=1

where r and s are the appropriate lag lengths (which are usually determined by
AIC criterion).

The conventional test of Granger causality is whether or not equation (9)

better explains movements in the dependent variable than equation (8). In
addition, to ensure that a failure of lagged macroeconomic factors to have a
significant effect on stock market returns results from the market efficiently
processing information rather than from that information not being an important
determinant of prices, we also examine whether equation (8) better predicts
 11

returns than equation (7). In summary, results support market efficiency if both of
null hypotheses hold:

(A) H0: 0 0 (in equation 8)

(B) H0: j = 0, j (in equation 9)

A finding that hypothesis (B) does not hold suggests that the market is (semi-
strongly) inefficient. A finding that hypothesis (B) holds, but (A) does not
suggest that efficiency considerations are irrelevant (Hanousek and Filer, 2000).

3.4 Error Correction Mechanism

If two variables are cointegrated, it is suggested that the ECM version of Granger
causality tests would be the most appropriate specification. The ECM can be
specified as follow:
r s
Pt = 0 + i Pt i + 0 M t + j M t j + ECTt 1 + t (10)
i =1 j=1

where ECT is the error correction term obtained from the cointegrating regression
or the linear long-run relationship of the variables (equation 4). In addition, the
coefficient in equation (10) is the error-correction coefficient and is also called
the adjustment coefficient. In fact, tells us how much of the adjustment to
equilibrium takes place each period, or how much of the equilibrium error is
corrected. According to Asteriou and Hall (2007), it can be explained in the
following ways:

1. If = 1, then 100% of the adjustment takes place within the period, or the
adjustment is instantaneous and full.

2. If = 0.5, then 50% of the adjustment takes place each period.

3. If = 0, then there is no adjustment.

Note that, with this specification, the changes in the stock prices will depend not
only on the changes in the macroeconomic variable but also on the long-run
relationship between them. The latter allows for any previous disequilibrium,
measured by the error correction term ECT, to exert potential influences on the
movement of the stock prices. According to Toda and Phillips (1994), the former
may be termed short-run causality from the macroeconomic variable while the
latter may be termed long-run causality. In order to test whether the stock
market is informationally efficient in the long run, we can test the following null
hypothesis:
 12

(C) H0: is significant, but small (in equation 10)

The reverse causation from the stock prices to the macroeconomic variables of
interest may also be evaluated by reversing the roles of the two variables in
equation (10). From these tests, one of the following four patterns of causality
can be noted: (1) unidirectional causality from X to Y; (2) unidirectional causality
from Y to X; (3) bidirectional causality; and (4) no causality.

5. Empirical Results
5.1 Descriptive Statistics

This section will investigate the temporal properties of collected data series.
Instead of displaying our data in the traditional manner such as graph,
correlogram, and other statistics, we will concentrate on ADF and PP tests for
stationarity. Although they are not reported in this paper, line graphs and
correlograms were used as the first feeling of our data. From these views, we
believe that stock prices and all macroeconomic variables are non-stationary.

Table 1 reports the results of the ADF tests, the tests are implemented with
and without the time trend. This table presents the results for the log-levels of the
data series, while Table 2 reports the results of ADF and PP tests for their first
differences. Figures in these tables are computed t (or exactly) statistics. Note
that test results from Eviews respectively report critical t values of 1%, 5%, and
10%.

Table 1: Integration Tests (Log Levels)5

Variables ADF Tests

None No trend Trend
VNI (VNIndex) 0.11 -1.65 -2.55
-3.46***
CP (Consumer price) 1.33 -0.96
-1.89 (a)
5.42** -1.34 -12.08*
IP (Industrial Production)
1.77 (a) -0.44 (a)
IM (Import) 2.26 -0.95 -2.99
EX (Export) 3.02 -0.86 -2.69
FX (Exchange Rate) 2.04 -1.11 -2.15
-3.95**
M1 (Money Supply) 2.15 0.33
-2.64 (a)
M2 (Money Supply) 1.86 0.96 -3.45***

5
The test results for the December 2000 to June 2008 period are the same.
 13

-1.58 (a)
-5.54*
LR (Lending Rate) 0.44 -2.21 -3.35*** (a)
-1.59 (b)
1.44 -0.90 -4.94*
DR (Deposit Rate) -3.47**(a)
-2.13 (b)
2.06 0.09 -3.25***
DC (Domestic Credit)
-2.46 (a)
FR (Reserves minus Gold) 1.75 -0.05 -2.65
MR (Money Reserves) 2.87 1.19 -1.14

Note: *, ** and *** denote significance at 1%, 5% and 10% levels respectively; and (a)
and (b) denote Modified AIC and Modified SIC respectively. Entries under
Residual Tests are statistics for testing the null hypothesis that the variable of
interest has a unit root.

The results from Table 1 consistently suggest that all time series considered
contain unit roots. That means they are all non-stationary time series. Some
points are worth making clear from these test results. With AIC criterion, we face
the mixed evidence of stationarity. That is, the null hypothesis of a unit root
cannot be rejected even at the 10% significant level using equations (1) and (2)
except industrial production. But the test results using equation (3) indicate seven
out of thirteen series are stationary. For this mixed evidence, we try other
information criteria. And the final results turn out to be consistent with previous
studies. With modified AIC and SIC, all variables are non-stationary time series.
Therefore, we must transform these variables into their first differences for
further investigation.

From the table 2, the null hypothesis for a unit root is rejected for all first
differenced series in most cases. In particular, the evidence from the PP tests
strongly supports the stationarity of some variables when their null hypothesis
cannot be rejected by ADF tests. This is similar to the case of Malaysian stock
market. Thus, the evidence seems consistently to suggest the stationarity of the
first-differenced series. In other words, these variables can be characterized as
I(1) variables. Because each set of variables are integrated of the same order, then
we can proceed with step two of the EG approach.

Table 2: Integration Tests (First Differences)6

Variables ADF Tests

None No trend Trend

6
The test results for the December 2000 to June 2008 period are the same.
 14

VNI (VNIndex) -6.59* -6.56* -6.52*

-1.19 -1.96 -2.38
CP (Consumer price)
-4.39* (c) -5.67* (c) -6.08* (c)
IP (Industrial Production) -1.98** -6.59* -6.74*
-2.28 -2.37
IM (Import) -1.67***
-14.1* (a) -14.0* (a)
EX (Export) -1.78*** -5.82* -3.81**
FX (Exchange Rate) -9.49* -7.87* -7.87*
-0.73 -2.22 -2.19
M1 (Money Supply)
-0.73 (a) -4.23* (a) -8.23* (a)
-0.19 -1.94 -2.37
M2 (Money Supply)
-4.77*** (c) -8.70* (c) -8.91* (c)
LR (Lending Rate) -4.97* -4.97* -4.92*
DR (Deposit Rate) -4.94* -5.21* -5.17*
-0.31 -2.10 -2.03
DC (Domestic Credit)
-4.87* (c) -8.63* (c) -8.77* (c)
FR (Reserves minus Gold) -13.8* -14.1* -14.1*
-0.63
MR (Money Reserves) -2.92** -3.25***
-10.16* (c)

Note: *, ** and *** denote significance at 1%, 5% and 10% levels respectively; and (a)
and (c) denote Modified AIC and Phillips-Perron Test respectively. Entries under
Residual Tests are statistics for testing the null hypothesis that the first differenced
series of interest has a unit root.

Having concluded that each of the series is non-stationary, we proceed to

examine whether there exists a long-run equilibrium relationship between stock
prices and each macroeconomic variable of interest in a bivariate framework.
Following this framework, we first regress stock prices to each macroeconomic
variable, and vice versa; save the residuals; then apply either ADF or PP tests for
these residual series. Similar to log-levels and first differences, we also view
these series by using line graphs and correlograms before conducting official
tests. Table 3 presents the results of both the ADF and PP tests for cointegration.
Surprisingly, we find evidence that, with both ADF and PP tests, the stock market
is cointegrated with all considered macroeconomic variables. These results are
lightly different from what Ibrahim (1999) had found in the Malaysian stock
market for the January 1977 to June 1996 period.

Table 3: Bivariate Cointegration Tests (Residuals from each equation)7

Equation Residual Tests Cointegration

7
The test results for the December 2000 to June 2008 period are the same.
 15

ADF PP Yes/No
VNI and Consumer Price -2.48** -1.76*** Yes
VNI and Industrial Production -1.94*** -2.33** Yes
VNI and Import -1.88*** -2.01** Yes
VNI and Export -3.46* -1.96** Yes
VNI and Exchange Rate -2.04** -1.69*** Yes
VNI and M1 -2.81* -1.71*** Yes
VNI and M2 -2.47** -1.76*** Yes
VNI and Lending Rate -2.38** -2.03** Yes
VNI and Deposit Rate -2.22** -1.78*** Yes
VNI and Domestic Credit -2.44** -1.77*** Yes
VNI and Reserves minus Gold -2.12** -1.88*** Yes
VNI and Money Reserves -2.90* -1.76*** Yes

Note: *, ** and *** denote significance at 1%, 5% and 10% levels respectively. Entries
under Residual Tests are statistics for testing the null hypothesis that the residual
series obtained from each bivariate model has a unit root.

These results indicate that the long-run relationship between these variables
and stock prices really exist in the Vietnamese stock market. These may also
imply that the presence of cointegration between the stock market on the one
hand and each macroeconomic variable on the other hand can significantly reject
the non-causality hypothesis between them. This finding seems to be slightly
different from the case of Malaysian case (see Ibrahim, 1999). In the Vietnamese
case, most macroeconomic variables react to deviations from the long-run
relationship. Whether the stock market corrects for the disequilibrium remains to
be investigated, in which case it may be said that the Vietnamese stock market is,
to which extent, not informationally efficient in the long-run. The problem
needed is to further investigate how much long-run inefficient the stock market
has struggled. This depends on the significance and magnitude of coefficients
in the error correction models. Additionally, the dynamic interactions between
these variables need to be established to assess the informational efficiency of the
stock market in the short-run. These issues are dealt with in the next section.

5.2 Bivariate Causality Tests

This section builds on the previous integration and cointegration tests to
appropriately specify a dynamic framework for assessing the interactions
between the stock prices and the macroeconomic variables of interest. Since all
residuals from each cointegrating equation are stationary, the error correction
version of Granger causality test is used. It is noted that although our main focus
is on the informational efficiency of stock prices, we also evaluate the possible
 16

feedback from the stock prices to the macroeconomic variables. These are
reported in the Table 4.

The first column of Table 4 presents two null hypotheses for each set of
variables: H01: Macroeconomic variable does not Granger cause stock prices,
and H02: Stock prices does not Granger cause macroeconomic variable. Although
our main focus is on H01, we also test H02. Specifically, testing these hypotheses
will result in one of the four patterns of causality: (1) unidirectional causality
from macroeconomic variable to stock price if H01 is rejected; (2) unidirectional
causality from stock price to macroeconomic variable if H02 is rejected; (3)
bidirectional causality between macroeconomic variable and stock price if both
H01 and H02 are rejected; and (4) no causality between macroeconomic variable
and stock price if both H01 and H02 are not rejected.

The second column of Table 4 presents optimal lag lengths of dependent

variable and independent variable in each VAR model. Since we have twelve
macroeconomic variables, we have to run 24 VAR models. The first equation of
each VAR model is used to test whether macroeconomic variable does Granger
cause stock price; while the second equation of each VAR model is used to test
whether stock prices does Granger cause macroeconomic variable. In order to
determine the optimal lag lengths of dependent variable (or endogenous
variable), this thesis employs the VAR estimation technique using Eviews.

Table 4: Bivariate Causality Tests (all cointegrated series)8

Null Hypothesis Optimal Lags Granger Test ECM

Dep. Indep.
F Stats 2 Stats
Variable Variable
(a) CP dnc VNI 12 8 1.71 13.7*** -0.05
VNI dnc CP 25 1 0.10 0.10 -0.02***
(b) IP dnc VNI 12 8 1.56 12.46 -0.07**
VNI dnc IP 14 1 0.16 0.16 -0.21*
(c) IM dnc VNI 12 1 0.42 0.42 -0.06***
VNI dnc IM 18 1 0.03 0.03 -0.12**
(d) EX dnc VNI 12 1 2.28 2.28 -0.07**
VNI dnc EX 20 1 0.56 0.56 -0.07
(e) FX dnc VNI 12 1 3.81*** 3.81*** -0.05**
VNI dnc FX 22 4 4.04* 16.15* 0.05
(f) M1 dnc VNI 12 15 2.60* 39.1* -0.04
VNI dnc M1 24 1 0.53 0.53 -0.02
(g) M2 dnc VNI 12 4 2.05*** 8.18*** -0.08**
VNI dnc M2 25 4 2.58** 10.32** -0.001

8
This test results are for the December 2000 to June 2009 period.
 17

(h) LR dnc VNI 12 2 1.73 3.47 -0.04***

VNI dnc LR 9 1 0.68 0.68 -0.08***
(i) DR dnc VNI 12 1 0.06 0.06 -0.04
VNI dnc DR 8 3 2.87** 8.62** -0.07***
(j) DC dnc VNI 12 1 0.84 0.84 -0.08**
VNI dnc DC 24 4 1.57 6.28 0.005
(k) FR dnc VNI 12 1 0.21 0.21 -0.07**
VNI dnc FR 4 2 1.13 2.26 -0.03
(l) MR dnc VNI 12 1 0.48 0.48 -0.08**
VNI dnc MR 12 1 1.50 1.50 0.001

Note: *, ** and *** denote significance at 1%, 5% and 10% levels respectively. The
term dnc means does not Granger cause. Entries under Granger Tests are F
statistics and 2 statistics for testing the null hypothesis that the coefficients sums of
causal variables are zero. And the underlying presents the existence of contemporaneous
relationship at 15% level of significance.

The selection criteria for the appropriate lag lengths of the unrestricted VAR
models employ F-tests and 2 tests. The selection procedure involves choosing
the VAR(p) model with the highest absolute value9 of AIC, SIC or the Hannan
Quinn (HQ) and lowest value of final prediction error (FPE). In practice, the use
of SIC is likely to result in selecting a lower order VAR model than when using
the AIC. Similar to previous studies, this thesis employs the AIC criterion. Once
the appropriate lag lengths of dependent variable in each VAR model are
selected, we then apply the simple-to-specific approach to determine the
appropriate lag lengths of independent variable on the basic of AIC criterion.

The third column of Table 4 presents the Granger causality test results. These
tests are simply conducted by Wald Coefficient Restriction test in Eviews. The
final column of Table 4 presents the ECM test results. In this table, we just
provide coefficients. From Table 4, we may note four important points from the
regressions.

First, three out of twelve macroeconomic variables, specifically consumer

prices, M2 money supply, and foreign exchange rates, have the contemporaneous
relationships with the stock prices.

Second, the bivariate causality test results show that two groups of
macroeconomic variables have different impacts on the stock prices. Group one,
including industrial production, imports, exports, lending rates, deposit rates,
domestic credit, foreign currency reserves, and money reserves, largely indicates
that the lagged changes in macroeconomic variables have no significant
predictive ability for the movements in stock prices. The null hypothesis that the

9
Because AIC, SIC, and HQ usually have the negative values due to the logarithmic forms.
 18

macroeconomic variables do not Granger cause stock prices is not rejected even
at the 10% significance level. It is noted that, except for consumer prices, the test
results appear to be consistent with both test statistics, F and 2. For consumer
prices, the null hypothesis that it does not cause stock prices in Granger sense is
rejected at the 10% significance level using the 2 statistic. Accordingly,
excluding consumer prices from this group is appropriate. However, the
contemporaneous information about these variables is not linked to stock market
returns because the hypothesis that H0: 0 0 is rejected even at the 15% level of
significance. Thus, the failure of lagged economic values to Granger cause stock
market returns should not be interpreted as implying that the stock market is
semi-strongly efficient with respect to this list of variables. In other words, the
stock market appears to divorce from reality of these economic activities.

For group two, including foreign exchange rates, M1 money supply, M2

money supply, and consumer prices as well, the lagged changes in
macroeconomic variables really have significant predictive ability for the
movements in stock prices. Saying differently, the null hypothesis for these cases
is rejected at the 10% significance level. The results from this bivariate analysis,
along with the existence of contemporaneous relationships, suggest that, in the
short-run, the Vietnamese stock market is not informationally efficient with
respect to consumer prices, foreign exchange rates, and M2 money supply. For
this reason, we expect that investors who traded on announcements of consumer
prices, foreign exchange rates, and M2 money supply might be able to earn
predictably positive returns10. For the M1 money supply, the fact that its current
values are not linked to current equity market returns reinforces the suggestion
that the market is also not efficient as conventionally understood. These findings
are likely to be in accordance with the newly-emerging equity markets in Central
Europe ten years ago (see Hanousek and Filer (2000)11.

Third, we observe that stock price movements anticipate variations in the

foreign exchange rates and the M2 money supply. This results seem to be
somewhat consistent with what Ibrahim (1999) had found in the Malaysian stock
market for the last decade. The striking difference between the two markets is
that the Vietnamese stock prices do not provide any predictive power for real
industrial production. This finding is not consistent with the hypothesis that stock
prices contain the market participants expectations of future real activities. For
this reason, the Vietnamese stock market may not do its best as the capital
mobilization for the economy. Saying differently, investors may not consider the
stock market as their long-run investment channel. Besides the contemporaneous
relationships, the causal link from stock prices to M2 money supply may reflect

10
We have not conducted a formal analysis of whether potential trading gains are sufficient to
compensate for transactions costs but the magnitude of the relationships suggests that they are.
11
Poland, Hungary, Czech Republic, and Slovak Republic.
 19

the importance of the stock market on the M2 money demand. We can explain
this special link as following. While functioning its role as a capital mobilization
channel, the stock market may attract a majority of idle money from society.
Accordingly, the stock prices may, to which extent, provide predictive power for
the increase in the M2 money supply. This finding is consistent with the
hypothesis that stock prices contain the market participants expectations of
future monetary policies. In other words, these findings may indicate the policy
reaction of the monetary authorities to the fluctuation in stock prices. Lastly, the
effects on the exchange rates of stock price changes possibly suggest portfolio
adjustments taken by investors.

Fourth, most coefficients of the error correction term reinforce our findings of
cointegration between stock prices and macroeconomic variables, except for the
consumer prices, the M1 money supply, and the deposit rates. They are signed as
expected and are significant in at least one equation. Specifically, the results
suggest that deviations from the equilibrium path are adjusted by about 4%8%
the next month through the movements in stock prices. From the estimates, the
adjustment toward the long-run relationship is extremely slow. This means that,
after any shock that forces the stock prices from their long-run values it takes a
long time for the prices to return to their equilibrium values if there is no opposite
shock to counter the initial shock. Although the results indicate the need for
intervention in such a case, they also point to the danger of creating policy shocks
because it may take time for a certain policy to come into effect.

The relative efficiency of the Vietnamese stock market appears to have shifted
greatly over time. In other words, the financial crisis really has impact on the
efficiency pattern of the stock market. Table 5 contains the same analysis as
Table 4, except restricted to the period up to June 2008 (before the financial
crisis). The test results indicate the relationships are very different from what we
have found above. First, all lag lengths have significantly changed. If we
compare with Central Europe markets, the Vietnamese stock market is unstable.
The memory ability of the post-crisis stock market lasts longer. Second, the
market, to somewhat lesser extent, appears to be moving backwards. Before the
crisis, the Vietnamese stock market may have possessed elements of semi-strong
efficiency. In particular, the stock market is informationally efficient with respect
to M2 money supply, lending rates, and deposit rates. Speaking differently, the
stock market is informationally efficient with respect to monetary variables.

Table 5: Bivariate Causality Tests (all cointegrated series)12

Null Hypothesis Optimal Lags Granger Test ECM

Dep. Indep.
F Stats 2 Stats
Variable Variable

12
This test results are for the December 2000 to June 2008 period.
 20

(a) CP dnc VNI 1 12 1.14 13.73 -0.04

VNI dnc CP 14 10 1.40 14.03 -0.001
(b) IP dnc VNI 1 8 1.47 11.74 -0.04
VNI dnc IP 12 1 0.08 0.08 -0.06
(c) IM dnc VNI 1 8 1.92*** 15.33** -0.03
VNI dnc IM 13 1 0.04 0.04 -0.10***
(d) EX dnc VNI 1 8 1.05 8.41 -0.05***
VNI dnc EX 18 1 0.48 0.48 0.05
(e) FX dnc VNI 1 8 2.47** 19.72** -0.03
VNI dnc FX 10 1 5.47** 5.47** -0.04
(f) M1 dnc VNI 1 8 2.63** 21.03** -0.04
VNI dnc M1 16 1 4.27** 4.27** -0.05
(g) M2 dnc VNI 1 8 1.59 12.7 -0.06***
VNI dnc M2 1 2 4.04** 8.09** 0.003
(h) LR dnc VNI 1 8 1.15 9.18 -0.04***
VNI dnc LR 3 4 2.26*** 9.03*** 0.05
(i) DR dnc VNI 1 8 0.98 7.83 -0.03
VNI dnc DR 3 12 2.14** 25.7** -0.04
(j) DC dnc VNI 1 8 1.49 11.93 -0.05***
VNI dnc DC 15 1 3.80*** 3.80*** -0.01
(k) FR dnc VNI 1 8 0.15 1.23 -0.04
VNI dnc FR 1 4 1.72 6.69 -0.06
(l) MR dnc VNI 1 12 2.35** 28.16* -0.04
VNI dnc MR 12 1 0.90 0.90 -0.05

Note: *, ** and *** denote significance at 1%, 5% and 10% levels respectively. The
term dnc means does not Granger cause. Entries under Granger Tests are F
statistics and 2 statistics for testing the null hypothesis that the coefficients sums of
causal variables are zero. . And the underlying presents the existence of
contemporaneous relationship at 15% level of significance.

But it seems to disappear due to impact of the financial crisis. Third, the stock
prices had played an important role on almost all monetary variables, while the
investors could not able to trade on the announcements of monetary information.
This feature is very significant for the economic stabilization policies. Fourth, the
real economic activity seems to have impact on the stock market because the
significant causal link from the imports to the stock prices may contain the
market participants expectations. Fifth, only four macroeconomic variables,
including exports, M2 money supply, lending rates, and domestic credit, indicate
the long-run relationship with stock prices; and the stock prices just have the
long-run relationship with imports. This may imply that the isolation between the
stock market and the economic reality has been established before the crisis. And
this could, to which extent, result in the fact that both the stock market and the
economy have weakly struggled against the attack of the financial crisis. In other
words, before the financial crisis, there are no significant adjustment processes
 21

which could prevent the errors in the long-run relationships becoming larger and
larger. In terms of ECM analysis, we may say that during the crisis, the stock
market and the economy have started to look together. If this is a case, we may
expect that the future prospect of the stock market turn out to be much better.

In summary, while our bivariate analysis suggests that the Vietnamese stock
market seems to be informationally inefficient in both short- and long-run.
Generally, the stock market seems to divorce from the most part of the economy.
It is still possible for a professional trader to make abnormal returns by
analyzing good or bad news contained in some macroeconomic variables. The
findings re-assure that the Vietnamese stock market is not well functioning in
scarce resource allocation and attractive enough to encourage foreign investors.
In fact, investors of all kinds in the market only concern their short-term
portfolios. In addition, instead of becoming more efficient over time, as one
might expect, the Vietnamese stock market appears to have become increasingly
divorced from reality. This is because the stock market used to be informationally
efficient with respect to some monetary variables. Furthermore, the bivariate
analysis also confirms that the financial crisis has significant impact on the
efficiency pattern of the Vietnamese stock market.

6. Conclusions
This paper employs the cointegration and error correction version of Granger
causality tests to investigate whether the Vietnamese stock market exhibits the
publicly informational efficiency. Specifically, we investigate the lead-lag
relationship between stock prices and twelve macroeconomic variables for
Vietnam. Data are collected from three official sources, namely, Thomson
Reuters, Bloomberg and International Monetary Fund during the December 2000
to June 2009 period.

The results from bivariate analysis suggest that the Vietnamese stock market
is not informationally efficient in both short- and long-run. The stock market
seems to even divorce from the most part of the economy. It is still possible for a
professional trader to make abnormal returns by analyzing good or bad news
contained in some macroeconomic variables. The findings re-assure that the
Vietnamese stock market is not well functioning in scarce resource allocation and
attractive enough to encourage foreign investors. In fact, investors of all kinds in
the market only concern their short-term portfolios (or so-called speculators).
This phenomenon is potentially risky for the economy because any shock can
result in a simultaneous capital outflow. This may, in turn, create pressures on the
balance of payment. For the market is not informationally efficient, especially
with respect to monetary variables, it may be dangerous for policy makers to
realize the role of monetary policies. However, in the investors point of view,
fundamental analysis is still significant for their investment decisions. Thus,
companies with strong equity analysts would have higher comparative
advantages in this inefficient market. In addition, instead of becoming more
 22

efficient over time, as one might expect, the Vietnamese stock market appears to
have become increasingly divorced from reality. This also reveals that the last
financial crisis has serious impact on the Vietnamese stock market.

The informational inefficiency implies that the scarce resources have not been
allocated into the best competing uses. In an inefficient stock market where stock
prices do not reflect the real value of the firms, well-managed firms may be
mistakenly undervalued by the market and, therefore, find it difficult to raise
funds, while fundamentally dysfunctional firms may be overvalued and easily
attract investors funds. This lemon-hazard problem may result in not only
misallocating resources, but also encouraging speculation. An efficient market
can eliminate price distortions and channel funds to the most efficiently managed
firms. This is extremely significant for a capital starved economy like Vietnam.

To properly perform its function of resource allocation, the Vietnamese stock

market should be efficiently improved in terms of publicly information, of which
three supplementary levels are specially considered.

First, macroeconomic information disclosure should be promptly and

accurately promulgated. Most Vietnamese macroeconomic data officially
published by the General Statistics Office (GSO), International Monetary Fund
(IMF), and others often lag at least six to nine months13. More importantly, many
macroeconomic variables have never been widely reported, especially
government expenditures, balance of payments, and employment. In this
situation, traders who have absolute advantages in accessing confidential
information could dominate the market, and thus make abnormal returns by
analyzing good or bad news contained in these leakages. Inversely, uninformed
investors blindly act on others decisions, formulating herding behavior. This
finding implies that an improvement of national statistical system is significantly
important. We should change our traditional wisdom that only public agencies
need macroeconomic variables for research and policy analysis. In financial
sector, however, everyone does.

Second, dissemination of information relating to listed companies is

necessarily improved by means of good corporate governance and market
transparency. These practices play an important role in protecting shareholders
and developing the market soundly. The current status of unclear and unreliable
disclosure can create invisible barriers for lasting the inefficiency longer. As
weve already learned from the literature review that the probability of finding
inefficiency in an asset market increase as the transactions and information cost
of exploiting the inefficiency increases (Proposition 2, Section 2.3). The poor
information from listed companies, along with unavailable macroeconomic news,

13
This can be easily checked by exploring the IMF-CD ROM, World Development Indicators CD-ROM,
or the Vietnam GSO website.
 23

turns out to be opportunities for some well-informed investors making prices.

Therefore, we suggest that most listed companies must adequately, accurately
and promptly announce all information updates about their management,
performance, and financial health on their websites. To attract foreign investors,
bilingual website should even become one of the compulsory requirements of
listed companies. In addition, some accounting principles need be properly
adjusted in accordance with international best practices.

Third, it is a need to promote liquidity of the stock market in order to perform

its role as a real capital mobilization channel. It is said that the probability of
finding inefficiencies in an asset market decreases as the ease of trading on the
asset increases (Proposition 1, Section 2.3). In doing so, we should scale up the
quantity of, and increase the quality of, and to diversify various kinds of goods,
including derivatives and corporate bonds, in order to meet the demands of the
market is: (i) to speed up the program on equitization of state-owned enterprises
and corporations, economic groups and state-owned commercial banks; to attach
equitization to listing in the securities market; and to expand the issue of new
shares to mobilize capital on the market. (ii) to request equitized enterprises
satisfying the listing conditions to be listed; to concurrently review and continue
the sale of state capital in enterprises in which the State is not required holding
controlling shares. (iii) to convert foreign invested enterprises into shareholding
companies with their shares to be listed and traded in the securities market.
However, experiences from other emerging markets suggest that the sequencing
of steps is critical to eventual success and that gradualism may be preferable to a
big bang approach. That means we should build the stock market slowly and
deliberately, adopting rules and procedures and only gradually allowing
companies that comply with listing requirements to trade.

Different from developed markets, the Vietnamese stock market is being led
by individual investors (account for 70-80% trading value, Thomson Reuters).
These investors are mostly characterized by short-run investments and unequable
mind. Consequently, the market is then characterized by high volatility and risk.
This risky environment shall lead to two remarkable dangers. First, investors,
especially institutional and foreign ones usually price stocks lower than they are
really worth. Second, the newly listed companies are often undervalued, and this
problem might be an impediment of the equalization process. Therefore, it is
vitally important to develop institutional investors such as investment funds.
Accordingly, we suggest that only investors who have sufficient conditions such
as capital and knowledge can independently join the market. Along with this
restriction, some special incentives for institutional investors can help reduce a
great number of uninformed individual investors.
 24

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