Vietnam Report Joint Stock Company (Vietnam Report) has recently published its regular Policy Debate No. 07, with the theme of “Market confidence and stock market change.” The research was carried out in the framework of VNR500 Report (the list of 500 Vietnamese largest enterprises) expected to be released on January 18, 2013.
Media prestige directs securities changes
Analytic articles about strengths of listed companies on mass media exert strong impacts on public confidence. The belief of an individual investor is not often subjective and is closely correlated with other individual investors because they listen to each other and look at newspapers and television programmes alike. Therefore, a small piece of information on a company’s earnings or fundamental macroeconomic indicators may give rise to bigger price changes than in theory. In addition, such confidence tends to exist until investors have enough reasons to change their beliefs.
Vietnam Report used Granger causality tests to determine causal relationships between daily fluctuations of VN-Index in the first nine months of 2012 with investor confidence decline index (the difference between total positive news and total negative news in media) in the same period. Test results proved that there was a causal relationship between the market confidence index and the volatility of stock prices (represented by VN-Index). When the difference between negative information and positive information about listed companies increases, investors tend to flee from the market, evidenced by decreased prices of shares they hold.
Three-day lag bad impact on VN-Index
Granger casualty test results showed that the decline of market confidence in has a negative impact on VNI-Index.
Test results show that, statistically, index VNINDEX be affected by the increase in the effective number of negative news and positive news from the previous three days. According to statistics, VN-Index is affected by the increased difference between negative information and positive information three days earlier.
In contrast, VN-Index has no statistical impact on market confidence index. Granger 2 casualty tests cannot point out that VN-Index has an impact on the difference between negative information and positive information.
At the corporate level, we can see a similar correlation between confidence index and stock price index. A typical example is the immediate impact of negative information on high-ranking personnel on stock prices. When CEO Truong Dinh Anh of FPT Corporation was known to be on holiday for two months, FPT share prices declined up to 20 per cent. In this case, bad news appeared mass media two days before FPT share prices slid.
Similarly, the detention of Nguyen Duc Kien caused negative effects on stock prices of Asia Commercial Bank (ACB). ACB plunged 40 per cent from more than VND25,000 to VND15,000.
These two examples indicated that as for companies with good governance, transparent information, the media-driven confidence index will affect stock price volatility. Stock price will fall if the media erodes investor confidence with bad news. However, in some cases, stock prices change a lot before the disclosure of bad information to mass media, this may be a sign of insider trading.
Thus, confidence changes in the media (represented by negative news or difference between negative news and positive news) happen before it causes impacts on securities trading volume and price. Hence, this is a good indicator for investors to anticipate share price prospects.
Phung Hoang
Vietnamese
