Foreign Investor Trading and Stock Market Stability: Evidence from VN30

Abstract

This paper aims to investigate the extent to which foreign investors’ net trading value impacts on the stability of the Vietnamese stock market. By using the vector error correction model (VECM) approach, and a time series of 30 stocks listed on the VN30 which are collected from Fiinpro over the period from February 2012 to September 2022, the research provides evidence of the positive impact of foreigners’ net trading value on the stability of the Vietnamese stock market, with a positive impact on stock market liquidity and a negative influence on stock market volatility in the short-term. However, there is no evidence of a long-term relationship between foreigners’ net trading value and the volatility or liquidity of the Vietnamese stock market. In addition, the research proposes several implications for policy makers which could enable them to make appropriate adjustments to regulations on foreign investor trading, in order to ensure the stability of the Vietnamese stock market in the future, as well as for both individual and institutional investors who can use foreign investor trading as a sign of the stock market stability to make decisions.