This paper investigates the existence of noise trader risk in Vietnam’s stock market and its effect on the daily returns of stock prices. The methodologies contain the estimation of GARCH (1,1) model to filter the residuals using the moving average method to calculate the impact of information traders. Noise trader risk or the risk that is caused by noise traders is derived by subtracting the residuals by the rational traders’ impact. | Hue University Journal of Science ISSN 2588–1205 Vol. 128, No. 5C, 2019, pp. 5–16; DOI: NOISE TRADER RISK: EVIDENCE FROM VIETNAM STOCK MARKET Phan Khoa Cuong, Tran Thi Bich Ngoc*, Bui Thanh Cong, Vo Thi Quynh Chau University of Economics, Hue University, 99 Ho Dac Di St., Hue, Vietnam Abstract: This paper investigates the existence of noise trader risk in Vietnam’s stock market and its effect on the daily returns of stock prices. The methodologies contain the estimation of GARCH (1,1) model to filter the residuals using the moving average method to calculate the impact of information traders. Noise trader risk or the risk that is caused by noise traders is derived by subtracting the residuals by the rational traders’ impact. We find that the noise trader risk does exist in Vietnam’s stock market and its impact on daily returns of stocks is unpredictable. Meanwhile, we find a positive impact of information traders on the stock returns. It increases the daily stock returns, and in turn, helps the market to correct itself because the stock prices move back to its fundamental value. Keywords: noise trader risk, GARCH (1,1), Vietnam’s stock market 1 Introduction Vietnam’s Stock Market (VSM) was officially established in 2000 with the first securities trading center known as Ho Chi Minh Stock Exchange. The second center was built in Ha Noi in 2005. The first five years of VSM witnessed a tranquil operation with small numbers of listed stocks and listed companies [19]. Later, thanks to the Vietnam’s Securities Law, the market grew dramatically and reached its peak in 2007 with the total market capitalization accounting for approximately 40% of GDP before declining considerably to a level of about 18% of the GDP in 2008 due to the Global Financial Crisis (Figure 1) [18]. The stock market recovered rapidly afterward and became one of the best performers in Asia in 2016. As a young market that has undergone two steps of financial .
