ĐẦU TƯ GIÁ TRỊ VÀ TỶ SUẤT SINH LỜI TẠI VIỆT NAM ttta

MINISTRY OF EDUCATION AND TRAINING

SATE BANK OF VIET NAM

BANKING UNIVERSITY HO CHI MINH CITY

TRAN TUAN VINH

VALUE INVESTING AND RETURN IN VIET NAM

SUMMARY OF DOCTORAL THESIS IN ECONOMICS
Major: Finace - Banking
Code: 9.34.02.01

Scientific instructor: ASSOC. PROF., PHD LE THI TUYET HOA

Ho Chi Minh City - 12/2019


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LIST OF PUBLICATIONS RELATED TO THE THESIS

1. Le, H. T. T., Tran, V. T., Nguyen, N. T. P., Ngo, N. S., & Huynh, T. L. D. (2018). The
Influence of Peg and F_Score on Stock Return by Valued Investment Portfolios: Empirical
Evidence from Vietnam. Asian Economic and Financial Review, 8(3), 366.
2. Le Thi Tuyet Hoa, Tran Tuan Vinh & Nguyen Pham Thi Nhan (2018). Effectiveness of
application of value-investing methods on Vietnam's stock market. Journal of Banking
Technology.

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SUMMARY
The main content of the thesis is to study the impact of three factors: the value of the stock, the
quality of the stock and the investment horizon of the stock on the equity value of the stock in
value investing on Vietnam's stock market. In particular, the thesis uses PEG coefficient as a
value factor and F_Score score as a quality factor.
The thesis uses Athanassakos (2013) model to study the relationship of the impact of PEG and
F_Score coefficients on return of value investing and GMM regression model to estimate
parameters. In addition, to study the relationship of term to the return of value investing, the
thesis uses the research directions of Li, Liu, Bianchi & Su (2012) and Bennyhoff (2009). The
research data includes 1,667 observations, summarized in the period from 5/2007 - 5/2017, are
enterprises listed on the Ho Chi Minh Stock Exchange, collected from FiinPro financial
software, website. of listed businesses, website of Ho Chi Minh Stock Exchange and IMF.
The research results show that: firstly, the average of average return of the portfolio of value
stocks on Vietnam's stock market is higher than the average of the market portfolio of 15.65%.
And the PEG coefficient is inversely proportional to the stock's return. Secondly, when
integrating F_Score score into value investing, the superiority of return of the stock portfolio
compared to the market increased to 20.66%. And the F_Score score is proportional to the
stock's return. Thirdly, the investment term is proportional to the return of the investment
value. This means that the longer the investment term, the higher the return on return of
investment.
Key keywords: value investing, return, PEG, F_Score, investment horizon, GMM, Vietnam
stock market.


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CHAPTER 1: INTRODUCTION OF THE STUDY

1.1. The necessity of the subject
1.1.1. Practical context
The theory of value investing was first mentioned in the Theory of Investment Value in 1938
by John B. Williams. Completed and popularized when Benjamin Graham published The
Intelligent Investor in 1949. The theory of value investing helps investors identify stocks what
can bring high return, by selecting stocks with good quality, good growth and intrinsic value
higher than market value.
Today, the theory of value investing is considered to be one of the most effective methods for
stock investors in the world, there are many successful investors in the world are using this
theory, such as: Warren Buffett, Peter Lynch, Joel Greenblatt, Walter Schloss ....
(Vanhaverbeke, 2014).
Along with the development of the stock market, the application of value investing theory is
also very popular in Vietnam. According to the research of Le Thi Tuyet Hoa, Tran Tuan Vinh
& Nguyen Pham Thi Nhan (2018) shows that value investing theory is the most applicable
theory on Vietnam stock market, with the rate of this theory application for 77% of total
investors surveyed.
However, in Vietnam, the return of applying value investing theory is not really outstanding
compared to the application of other investment theories (Le Thi Tuyet Hoa, Tran Tuan Vinh
& Nguyen Pham Thi Nhan, 2018 ).
The question is why the effectiveness of the application of value investing theory of investors
on Vietnam's stock market is limited? How to improve investment efficiency for value
investors in Vietnam stock market? In order to answer these questions, it is necessary to study
the factors that affect the stock return in value investing of investors in Vietnam stock market.
1.1.2. Theoretical context
If other investment theories show that the factors affecting the stock return come from the
outside of the stock, the value investing theory provides the view that the factor influences the
stock return come from inside of stocks. This theory shows that stocks have intrinsic value and
that this value is determined through valuation (William, 1938; Graham, 1949). Studies on the
impact of intrinsic value factors on stock return of Basu (1977), Chan, Hamao, and Lakonishok
(1991), Fama and French (1992 & 1998), Chen and Zhang (1998), Kang and Ding (2005),

Chahine (2008), Athanassakos (2009) and Pham Huu Hong Thai & Nguyen Vu Hong Phuong
(2015) all show that stocks with intrinsic value higher than market prices bring return higher
than stocks has intrinsic value lower than market price.
The second factor affecting the stock return in value investing is the quality factor of the stock
(such as revenue, profit, growth rate, debt ...). According to Graham (1949), stocks with good
quality will have high return. Sharing the view with Graham (1949), Fisher (2003) also argued
that the quality of a stock affects the stock return. Studies of Piotroski (2000), Mohr (2012),
Galdi et al (2013), Hyde (2014) and Vo Thi Quy & Bui Thanh Truc (2015), Lynch (1989),


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Greenblatt (2010), Novy- Marx (2013), Athanassakos (2013), and Fama (2015) also show that
the quality factors affect the stock return.
Warren Buffett adds a third factor which is that investment horizon also affects the return of
stocks in value investment (Nikki Rose, 2000); According, holding long term value stocks will
result in the stock return higher than short term holdings.
From the practical and theoretical contexts, we can be seen that the study of the impact of three
factors: the value of the stock, the quality of the stock and the investment horizon of the stock
on the return of the stock in the value investing in Vietnam stock market is a very necessary
issue. From there, it is possible to make policy suggestions to help improve return in value
investing on Vietnam's stock market.
1.2. Research gaps
From reviewing and discussing researches on the impact of the value investing theory on stock
returns, th thesis found the following research gaps:
• The first gap, when using P/E and BM as a valuation factor, the above studies ignore the
importance of the growth factor for the valuation of stocks as mentioned in Graham (1949,
1973), Lynch (1989), Fisher (2003) and Buffett (Hangstrom, 2005). To solve the first gap, the
thesis will use the PEG ratio as a value factor to study the impact of the stock value factor on
the return of value investment.

• The second gap, the F_Score built in Piotroski's (2000) research, reflects well the quality of
the stock; however, the model used to study the impact of F_Score on return of value
investment is inappropriate; Meanwhile, the model of the impact of the quality factor of the
stock on stock return in Athanassakos (2013) is very suitable but the Score was built by
Athanassakos (2013) to represent the quality factor of the stock is not appropriate again; To
solve the second gap, the thesis will use the F_Score score as a representative of the stock's
quality factor to study the impact of a stock's quality factor on the return of value investment.
At the same time, using the economic model in the research of Athanassakos (2013) to study
the impact of the value and quality factors of stocks on the return of value investment.
• The third gap, there is very little research on the impact of the investment horizon on the
return of value investment. Therefore, the study of the impact of the investment horizon on the
return of value investment is considered a gap. To solve the third gap, the thesis will study the
effect of the investment horizon on the return of valuable investment with terms from 1 to 5
years.
1.3. Objectives of the study
1.3.1. Overall objectives
The overall objective of the thesis is to study the impact of three factors: the value of the stock,
the quality of the stock and the investment horizon on the return of the stock in value investing
on Vietnam's stock market.
1.3.2. Detail objectives


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• Determining the impact of the stock value factor on the stock return in value investing on
Vietnam's stock market.
• Determining the impact of the quality factor of stocks on the stock return in value investing
on Vietnam's stock market.
• Determining the impact of the investment horizon on the stock return in value investing on
Vietnam's stock market.

• Proposing solutions and recommendations for the State and investors to improve the quality
of the return of value investing in Vietnam's stock market.
1.4. Research question
• How is the trend and the degree of impact of the value factor of stocks on the return of value
investing in Vietnam's stock market?
• What is the trend and the degree of impact of the quality factor of stocks on the return of
value investing in Vietnam's stock market?
• What is the trend of the impact of the investment horizon on the return of value investing in
Vietnam's stock market?
• What solutions and recommendations are needed for the State and investors to improve the
return of value investing in Vietnam's stock market?
1.5. Object and scope of the study
• Object of the study: the impact of factors on the stock return in value investing on Vietnam
stock market
•Research scope:
- Scope of space: limited research on stocks listed on Ho Chi Minh Stock Exchange.
- Time range: The study was conducted with review data from 5/2007 - 5/2017.
- Scope of content: research on value investment in stocks with the following content limits:
(i) with respect to the quality factors of stocks, only quantitative criteria are used; (ii) For the
stock valuation method, only the multipliers (or comparison) method does not use the
discounted cash flow valuation method or asset valuation method.
1.6. Contribution of the research topic
• About practice
- See the impact of the value factor, the quality factor of the stock and the investment horizon
on the stock return in value investing in Vietnam.
- Disseminate PEG valuation method and F_Score model to investors in Vietnam.
- Providing for value investors in Vietnam with reasonable solutions and recommendations to
improve the return through the good selection of valuation factors, quality factors of stocks
and investment horizon.

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- Making recommendations for the State to develop the application of value investing theory
in Vietnam.
• About theory
- Generalize the theoretical background on value investing theory, the factors affecting the
return of value investing, and the researches on the value investing.
- Adding new research directions when studying the impact of factors on the stock returns in
value investing by using PEG as a valuation factor, F_Score as representative for the stock
quality factor and economic model of Athanassakos (2013) to determine the direction and
measure the impact of these factors on stock return.
- Adding research on the impact of the investment horizon on the return of value stocks.
1.7. Methods and research data
1.7.1. Research Methods
In order to answer the research questions of the thesis, the PhD student made the following
research hypotheses: First hypothesis: PEG coefficient is inversely proportional to the return
of stocks in value investing in Vietnam stock market. The second hypothesis: F_Score score is
proportional to the stock return in value investing in Vietnam stock market. And the third
hypothesis: the investment horizon will be proportional to the return of the stock in value
investment in Vietnam stock market.
To prove the 1st and 2nd hypothesis, the thesis uses economic model of Athanassakos (2013).
The formula of the model is as follows:
Rit – Rft = a + b(Rmt – Rft) + c(Rst – Rbt) + d(Rlt – Rht) + e(Rhft – Rlft)+ eit
In which: Rft is the risk-free rate of return at time t; Rmt is the return of the market portfolio;
Rst is the return of the list of stocks with small market capitalization at time t; Rbt is the return
of the portfolio of stocks with large market capitalization at time t; Rlt is the return of the
portfolio of stocks with PEG less than or equal to 1 at time t; R ht is the return of the portfolio
of stocks with PEG greater than 1 at time t; Rlft is a return of a portfolio of stocks with a low
F_ Score at time t; Rhft is a return of a portfolio of stocks with a high F_ Score at time t.

At the same time, the PhD student used the System-GMM method to estimate the coefficients
of the model, after checking the table data parameter estimation methods: Pooled OLS, FEM
and REM.
To prove the third hypothesis, the thesis uses the research direction of Li, Liu, Bianchi & Su
(2012) to prove the following four specific hypotheses: Hypothesis 3.1: Average annual return
of value and good quality stock portfolio is proportional to the investment horizon. Hypothesis
3.2: The difference between return of good value stock portfolio and risk-free rate is
proportional to the investment horizon. Hypothesis 3.3: The difference between the return of
good value stock portfolio and the return of market portfolio is proportional to the investment
horizon. And hypothesis 3.4: Sharpe ratio of good value stock portfolio is proportional to the
investment horizon


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1.7.2. Research data
The research data includes 1,667 observations, synthesized in the period from 5/2007 - 5/2017,
are businesses listed on the Ho Chi Minh Stock Exchange, collected from FiinPro financial
software, website. of listed businesses, website of Ho Chi Minh Stock Exchange and IMF...
1.8. The new points of the thesis
• The first new point is that the thesis uses the F_Score to select good quality stocks, and uses
the PEG valuation to identify undervalued stocks (or value stocks) to research on the return of
value investment. This valuation is more prominent than the P/E or BM valuation that most
researches on value investing use, because it integrates the growth rate of the business.
• The second new point is the thesis using Athanassakos model (2013) to study the impact of
F_Score and PEG valuation on stock return, while most previous studies all use the research
model of Piotroski (2000).
• The third new point is that the thesis studies the impact of the investment horizon on the
return of value stocks; Meanwhile, most of the studies on the impact of the term of investment
on the efficiency of investment are studied on the overall stock of the entire market.

• The fourth new point is that the thesis uses four criteria at the same time to study the impact
of the investment horizon on the return of value stocks, including: (i) return of value stocks,
(ii) outperform return of the portfolio of value stocks against risk-free rate, (iii) outperform
return of the portfolio of value stocks compared to the market average return, and (iv) Sharpe
ratio of the portfolio of value stocks.
• The fifth new point is that the thesis uses system-GMM method to estimate the coefficients
in the regression model. Meanwhile, most other researches use the Pooled OLS method.
• The sixth new point is that the thesis offers solutions and recommendations to help value
investors to improve their return on equity in the Vietnam stock market.
1.9. The structure of the thesis
The thesis is structured with 5 chapters:
Chapter 1: Introduction of study
Chapter 2: Theoretical basis of the factors affecting the return of value investing
Chapter 3: Research methodology
Chapter 4: Research results and analysis
Chapter 5: Conclusions and recommendations


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CHAPTER 2: THEORETICAL BASIS OF THE FACTORS AFFECTING THE
RETURN OF VALUE INVESTING
2.1. The theories of investment
According to Burton, G. Malkiel (2007), investment is a method of buying assets to make a
profit in the form of reasonably predictable income (such as dividends, coupon or rental
income) and / or investment value will increase after a long time. Therefore, one of the
important research topics of modern finance is the development of investment theories to help
investors identify high stock return by studying the factors impact on the stock's return.
Common investment theories such as:









Castle-in-the-Air Theory
Value Investing
Modern Portfolio Theory – MPT
Capital Asset Pricing Model_ CAPM
Arbitrage Pricing Theory – APT
Efficient Market Hypothesis
Behavioral Finance Theory

2.2. Value Investing
2.2.1. Outline the development of value investing
In 1938, The theory of Investment Value was first presented in the work of The Theory of
Investment Value by John B. Williams. William (1938) proposed a formula to determine the
intrinsic value of a stock based on dividend income and the concept of discount.
In 1949, Value Investing was perfected and became popular when Benjamin Graham published
The Intelligent Investor. Unlike Williams (1938) who only provided the method of determining
intrinsic value, Graham (1949) proposed a method (later called the Value Investing theory) to
help investors is possible to identify stocks which are likely to bring about high returns by
selecting stocks with good quality and growth, determining the intrinsic value of these stocks,
and then buying stocks which have intrinsic value higher than market value (called stocks
underpriced by market _ UnderValue). The content of the Graham theory (1949,1973) revolves
around two basic assumptions that (i) each stock has an intrinsic value that can be determined
by the valuation method. (ii) stock price will oscillate around and be affected by intrinsic value.
Therefore, return of stocks will be influenced by two main groups of factors, namely the value

and quality factors of stocks.
According to Graham (1973), the criteria for selecting good quality stocks are: (i) Company
size. (ii) Financial status of the company. (iii) The stability of company profits. (iv) History of
dividend payment of the company. (v) Growth potential of the company. At the same time,
Graham (1973) used the comparative method (also called the multiplier method) to determine
the intrinsic value of a stock, namely the P/E ratio (market price on EPS) and P/B (market price
on book value)
Graham's (1973) theory has two major limitations:


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- Firstly, the criteria presented by Graham (1973) lack the criteria to evaluate the profitability
of the company. In addition, the criteria for selecting quality stocks by Graham (1973) are still
disjointed and unconnected to make a reasonable assessment of the quality of stocks.
- Secondly, when determining the intrinsic value of the stock, Graham (1973) uses P/E and
P/B valuation, which shows that Graham did not care about the impact of growth on intrinsic
value of stock.
In 2003, Fisher (2003) added qualitative criteria when determining quality stocks, highlighting
the effects of growth when determining the intrinsic value of stocks and proposing equity
investments with long tern for high return. However, Fisher's theory (2003) also has some
limitations such as: (i) Focusing on qualitative criteria, it will cause many difficulties for
investors when applying to assess the company; (ii) This theory has little focus on financial
indicators; (iii) It is not clear about the relationship of the P/E ratio and the growth potential of
the company to see clearly when the stock is undervalued.
According to Hagstrom (2005), Warren Buffett developed the Value Investing theory by
combining Graham's quantitative criteria (1949) and Fisher's qualitative (2003) to select
quality stocks and use the discount cash flow model (DCF) of Williams (1938) to valuate stock;
at the same time, adding investment horizon factors. However, Buffett's theory has two
limitations: first, the criteria for selecting quality stocks proposed by Buffett are still disjointed

so that they can not properly assess the quality of stocks. In this respect, the F_Score system
to select quality stocks of Piotroski (2000) performed better. Second, Buffett's intrinsic value
that based DCF method is quite complicated for application investors and difficult to research.
In this respect, the PEG method of Lynch (1989) is more appropriate.
2.2.2. Content of value investing theory
2.2.2.1 Identify undervalued stocks
According to Damodaran (2012), there are currently three methods of determining the intrinsic
value of common stocks that have been used: discounted cash flow; asset valuation; and
comparison valuation (multipliers). The thesis uses the method of comparison with PEG ratio
as a value factor to determine the value of stocks.
Determine the PEG ratio:
PEG =

P ⁄E
g x 100

In which, g is the estimated growth rate
Indicators for measuring growth rate
Graham (1973) used EPS to measure growth. According to Hangstrom (2005), Buffett uses
the free cash flow of equity (FCFE) to calculate growth and this growth rate must be stable for
many years in the past. Lynch (1998) uses profits to assess business growth. Fisher (2003)
places the interest of a growth company in revenue.
However, using the company's after-tax profit or EPS to calculate growth is more appropriate.
Because for investors, profit after tax or EPS is the most concerned target, because it accurately


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reflects the performance of the company and the ultimate benefit of investors when buying
stocks, all benefits of investors are calculated based on the results of this indicator. In addition,

this is also data that investors can easily understand and calculate.
Ways to quantify growth
According to Damodaran (2012), there are currently 3 common ways to forecast the growth
rate of revenue or profit or any cash flow of the company:
Firstly, estimate the growth rate based on the company's fundamentals. The intrinsic growth
rate of the enterprise is calculated by the formula: g = b * ROE, where b is the rate of retained
earnings and ROE is return on equity.
Second, use data from stock analysts to give a reasonable estimate of the growth rate.
Third, use historical data. In value investing, thesis recommends using this calculation method
to determine the future growth rate. Because the nature of value stocks is good stock, one of
the important criteria to evaluate good stocks of value investing is that the company must have
a stable growth in the past.
2.2.2.2. Choose good quality stocks
Piotroski (2000) selected good quality stocks by using the F_Score score determined by using
nine signals to score the financial performance of the business. F_Score is the total score of
the criteria, so the score will range from 0 - 9 points. F_Score of 9 indicates the business with
the best financial signal, with 0 representing the worst financial signal. F_Score points will be
divided into 3 grades: 0 - 4 points is low, 5 points are average, 6 - 9 points are high.
Table 2.1: Criteria for scoring financial indicators in F_Score
Indicator group
Indicators
Symbol
Point =1
ROA
Return on Asset
ROA > 0
Profitability

Leverage,
liquidity, and

source of Funds
Operating
Efficiency

Point = 0
ROA < 0

Cash
Flow
CFO
CFO > 0
CFO < 0
Operation
Change of ROA
∆ROA
∆ROA > 0
∆ROA < 0
Accumulation
ACCRUAL CFO – ROA >0
CFO – ROA < 0
Change of long
term
debt ∆LEVER ∆LEVER < 0
∆LEVER > 0
leverage
Change
of
∆LIQUID ∆LIQUID > 0
∆LIQUID < 0
liquidity

Stock Offering
EQ_OFFER No offering
Offering
Change of gross
∆MARGIN ∆MARGIN > 0
∆MARGIN < 0
profit ratio
Change of total
∆TURN
∆TURN > 0
∆TURN < 0
assets turnover
Source: Piotroski (2000)


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2.2.2.3. Horizon of Value Investing
• Concept of investment term
According to the SEC (2009) (US Securities Commission), the investment horizon is the period
of time, usually expressed in months, years or decades that investors plan to invest to achieve
the financial goals of yourself. Long term investment period (long term) is the investment
period of 3 years or more. Short-term investment (short term) is the investment period of 1
year or less. The period from over 1 to less than 3 years is considered as the medium term
(According to the definition of NASDAQ Stock Exchange, USA)
• Factors affecting investor's choice of investment horizon
- Characteristics of the source of capital used for investment.
- Freedom of trading and ability to tolerate liquidity shortage.
- Organizational structure of the investor.
- How to evaluate investment results and pay rewards for investment managers.

- The degree of freedom of capital rotation on the stock market.
- Investment philosophy of investors.
- Information used to make investment decisions.
• Investment horizon of value investing
The investment term of value investments is long term, so value investors are long-term
investors. Long-term investment will bring benefits to value investors:
- Facilitate increasing investment efficiency.
- Bring more opportunities for value investors.
- Ability to invest in stocks that are illiquid but have high profit potential.
- Bring lower costs to value investors.
- Helps reduce risks for value investors.
2.3. Return of value investing in the stock market
2.3.1. The concept of the return on value investing on the stock market
The return of value investing on the stock market is the result of a comparison between the
amount of money that investors gain and the initial capital they spend to invest in one or a
number of value stocks (called a stock value portfolio) in the stock market in a certain period.
Usually to see the real effect of the investment, investors often calculate this return per unit of
risk or compare it with the return of a reference porfolio. Investors can calculate gross return
for the total investment period or calculate the average return for an investment period to
determine the efficiency of their investment, the most common calculation is the average return
for the 1-year term.


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2.3.2. Indicators for measuring the return of value investing on the stock market
Sharpe ratio: this ratio indicates the return per unit of overall risk, which is used to evaluate
the performance of diversified portfolios.

Where Sh is the Sharpe ratio, Ṝ is the portfolio's return, Rf is the risk-free return, Ϭ is the

portfolio's standard deviation.
Treynor ratio: This ratio reflects the systematic risk compensation or return per unit of
systematic risk. This factor is used to evaluate the performance of the portfolio that has been
fully diversified.

Where Th is the Treynor ratio, Ṝ is the portfolio's return, Rf is the risk-free return, β is the beta
of the portfolio calculated according to the CAPM model.
Jensen's alpha index: This index reflects the difference between real profit and reasonable
profit determined through CAPM theoretical models.
α = Rp (real) – (Rf + βp (Rm – Rf))
In where, Rp (real) is the real profit of the portfolio, Rf is the risk-free profit, βp is the beta of
the portfolio, Rm is the expected return of the market.

The Treynor-Black ratio, or appraisal ratio: indicates the excess returns of the real return
to the theoretical return per unit of non-systematic risk of the portfolio.
𝛼
𝐴𝑅 =
𝜎
With α being the alpha index of Jensen (1968), σ is the standard deviation of the portfolio
calculated according to the standard deviation of the stocks that make up the portfolio. The
higher of AR, the more effective of the porfolio.
Compare with return of the portfolio: With this measure of investment efficiency, investors
will calculate return of the portfolio being studied; After that, compare with return of a standard
portfolio selected for comparison, the most popular being the market portfolio.

2.3.3. The impact of factors on the return of value investing
2.3.3.1. Impact of stock value factor on the return of value investing
The PEG will be used to represent the value factor. Most studies show that stocks with low
PEG will bring higher return to investors than stocks with high PEG. Therefore, the PEG ratio
is inversely proportional to the stock return of value investing in Vietnam stock market.

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2.3.3.2. The impact of quality factor on the return of value investing
The F_Score score will be used to represent a good stock factor in this study. Research results
of Piotroski (2000) showed that the list of value stocks with high F_Score resulted in excess
return (23%) compared to the portfolio of value stocks with F_Score low and excess return
(7.5% ) compared to return of the market average. Therefore, the F_Score will have a positive
impact on the stock return of value investing in Vietnam stock market.
2.3.3.3. The impact of the investment horizon factor on the return of value investing
Studies show that the investment horizon has a positive impact on the return of value investing.
The impact of the term of investment on the return of value investing on the stock market takes
place according to the following transmission mechanisms:
• Firstly, the basic elements of value stocks tend to increase sharply over time, thereby affecting
the return of value investing.
• Secondly, the investment horizon will affect the ability to maintain the investment status,
thereby affecting the return of value investing.
• Thirdly, the term of investment will impact on the ability of value investors to exploit
opportunities, thereby affecting the return.
• Fourthly, the investment horizon will impact on transaction costs, thereby affecting the return
of value investing.
2.4. Literature review
2.4.1. Study the impact of value factor on the return of value investing
When studying the impact of the valuation factor on the return of value investing, in most
studies, the selected factor is P/E and / or BM. Basu's study (1977), Chahine (2008) showed
that stocks with low P/E ratio (ie high intrinsic value) will have return higher than stocks with
high P/E ratio (i.e. low intrinsic value). Research by Chan, Hamao, and Lakonishok (1991),
Fama and French (1992), Fama and French (1998), Chen and Zhang (1998) and Kang and
Ding (2005) show that stocks have high BM ratios (ie high intrinsic value) will have return

larger than stocks with low BM (ie low intrinsic value). The studies of Athanassakos (2009),
Pham Huu Hong Thai and Nguyen Vu Hong Phuong (2015) used two P/E and BM valuation
factors together, the results showed that stocks with low P/E ratio will have return larger than
stocks with high P/E ratios and stocks with high BM will have return higher than stocks with
low BM. Thus, most of the researches in the scope of PhD student's profile have agreed with
the value investing theory, which means that stocks with high intrinsic value will have return
higher than stocks with low intrinsic.
However, these studies have two important disadvantages: Firstly, the scientists stated that
value stocks are only stocks that are undervalued, ignoring the quality of stocks as per opinion
of Graham (1949); The porfolio that are sorted by P/E and BM, is return not as high as the
quality and undervalued portfolio (Athanassakos, 2012). Research by Le Thi Tuyet Hoa, Tran
Tuan Vinh & Nguyen Pham Thi Nhan (2018) also shows that investors use P/E or BM to
evaluate and select value stocks have low investment return. Second, when using P/E and BM


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as a valuation factor, the above studies ignore the importance of the growth factor for
determining the value of stocks as mentioned in Graham ( 1949, 1973), Lynch (1989), Fisher
(2003) and Buffett (Hangstrom, 2005).
2.4.2. Study the impact of value and quality factors on the return of value investing
When studying the simultaneous impact of the value and quality factors of the stock on the
return of value investing, the study will follow three steps: Step 1 using valuation ratios to
choice in the data sample a list of undervalued stocks. Step 2 will continue to sort this portfolio
by using stock quality indicators; after two filtering times, there will be stock porfolio that
ensure two factors: stocks are undervalued and good quality; Next, the performance of these
portfolios will be measured by comparing their return with the market return or the portfolio
of high-value stocks to evaluate the effectiveness of the portfolio of value stocks. And, step 3,
the research will find the correlation between the return of the stock portfolio with the valuation
and quality factors . In this group of researches, Piotroski (2000) and Athanassakos (2013) are

more prominent in the study of the effect of quality factors on stock returns, because in their
research model, the two authors have built a scoring system of stock quality criteria.
Piotroski (2000) used BM valuation ratio and a system of financial indicators to calculate the
points of stocks (called F_Score) to select stocks with high intrinsic value and good quality to
include in the portfolio. The research results show that the quality factor (F_Score) is directly
proportional to the return of value stocks and value stock portfolios with high F_Score are
excess returns 23% compared to the stock portfolio with low F_Score. Inheriting the research
direction of Piotroski (2000), the studies of Mohr (2012), Galdi et al (2013), Hyde (2014) and
Vo Thi Quy & Bui Thanh Truc (2015) also show that the portfolio with a high F_Score score
will be return better than a stock portfolio with a low F_Score.
The emphasis of this study is to build an F_Score that fully links three key aspects of corporate
financial health, including: profitability, performance and financial leverage. However, these
studies have three major disadvantages: First, the use of BM valuation factor will lead to
ignoring the growth factor of the company. Secondly, in research methodology, when studying
the effect of F_Score on the return of the value stock portfolio, most previous studies used the
research model of Piotroski (2000). In this model, the presence of two accumulating interest
variables (Accrual) and the new offering variable (Offer) coincide with the calculation of the
F_Score score, this will falsify the impact of the F_Score on the return of value investing. The
thesis found that the research model of Athanassakos (2013) will be better than the model used
in Piostroski (2000). Thirdly, in the regression method to estimate parameters of independent
variables, most of the research-oriented works of Piotroski (2000) use the Pooled OLS model
to run table data. However, the results obtained from running the Pooled OLS model are very
prone to defects such as heteroskedasticity, autocorrelation and especially endogenous
phenomena when running research data.
Unlike Piotroski (2000), the study of Athanassakos (2013) uses P/E as a valuation factor and
Score as a quality factor of stocks to study the impact of value and quality factors on the return.
The most prominent point of Athanassakos (2013) is that like Piotroski (2000), a system of
financial indicators (Score) is used to measure the quality of stocks. Research results of
Athanassakos (2013) showed that the return of the stock portfolio with low Score outperformed

14

the return of the stock portfolio with high Score. The results of this research agree with the
viewpoint of value investing theory. Unlike the F_Score score, the criteria used to calculate
the Score do not overlap with independent variables in the research model; however, the
limitation of Score is to cover a wide range of internal and external indicators, qualitative and
quantitative. This will make it difficult to appreciate the quality of the stock and hard to
calculate for investors. Therefore, in the content of this thesis, the PhD student uses the
F_Score as the quality factor of stocks combined with the model of Athanassakos (2013) to
study the impact of quality factors on stock returns.
2.4.1.3. Study the impact of the investment horizon on the return of value investing
Through a review of the before researches, it shows that there are very few studies on the
impact of the investment horizon on the return of value investment. Piotroski (2000) when
studying the impact of the valuation and quality factors of stocks that mention the impact of
the term of investment on the return of value investment; The research results show that the
high F_Score and value stock group has return after 1 and 2 years holding respectively 23.9%
and 47.9% higher 5.9% and 12.7% compared to the market. Vo Thi Quy & Bui Thanh Truc
(2015) applied the research method of Piotroski (2000) to study the effects of the valuation and
quality factors of stocks also show that the return is in the investment period 1 year and 2 years
of the value stock portfolio with high F_Score compared to the portfolio with low F_Score is
16.1% and 41.3% respectively. However, these two studies only mentioned the 1-year and 2year terms so it was impossible to conclude that the investment term was directly proportional
to the return of value investing.
Although, the research on the topic of the impact of the investment horizon on the return of
value stocks is very little mentioned, but there are many studies on the topic of the impact of
the term on the investment efficiency of the general stock (not a group of value stocks). Most
studies suggest that long-term investments will be more effective than short-term investments
from the perspective of return and/or risks. Or the term of investment will have a positive
impact on the return and inversely to the risk.

15

CHAPTER 3: RESEARCH METHODOLOGY
3.1. Research hypotheses
• Hypothesis 1: PEG coefficient is inversely proportional to the return of stocks in value
investing in Vietnam stock market.
• Hypothesis 2: F_Score score is proportional to the stock return in value investing in
Vietnam stock market.
• Hypothesis 3: the investment horizon will be proportional to the return of the stock in value
investment in Vietnam stock market.
3.2. Research Methods
3.2.1. Method of studying the impact of value and quality factors on the return of value
investing on Vietnam stock market
3.2.1.1. Basis of model
To measure the impact of PEG and F_Score on return of value investment, the thesis uses the
economic model of Athanassakos (2013). The economic model of Athanassakos (2013) was
developed based on the three-factor model of Fama and French (1992).
3.2.1.2. Proposed research model
Based on the Athanassakos model (2013), in order to find the relationship of the impact of
PEG and F_Score to return of value investment, the thesis changed P E to PEG and SCORE
becomes F_Score, to form the model as follows:
Rit – Rft = a + b(Rmt – Rft) + c(Rst – Rbt) + d(Rlt – Rht) + e(Rhft – Rlft)+ eit
In which:
Rft is the risk-free return at time t
Rmt is the of the market portfolio
Rst is the return of the portfolio of stocks with small market capitalization at time t
Rbt is the return of the portfolio of stocks with large market capitalization at time t
Rlt is the return of the portfolio of stock with PEG less than or equal to 1 at time t
Rht is a return of the portfolio of stocks with PEG greater than 1 at time t

Rlft is a return of a portfolio of stocks with low F_ Score at time t
Rhft is a return of a portfolio of stocks with high F_ Score at time t
This model is abbreviated as follows:
RIRFit = a + bRMRFt + cPMARKETCAPt + dPPEGt + ePFSCOREt + eit
In which, RIRFit is (Rit – Rft); RMRFt is (Rmt – Rft); PMARKETCAPt is (Rst – Rbt); PPEGt is
(Rlt – Rht); and PFSCOREt is (Rhft – Rlft)
3.2.1.3 Explain the variables in the proposed model
a. Dependent variable: RIRF is the difference between return of value investment and the
risk-free rate (Fama & French, 1992)
RIRFit = (Rit – Rft)
In which, return of i stock at time t (Rit):


16
Rit 

P

i ,t

 Pi , t 1



Pi , t 1

with, Pi,t and Pi, t-1, in turn, is the adjusted market price for dividend payment and new
offering at time t and t-1 of i stock.
b. Independent variables
RMRFt: market premium

This is the difference between the market's return and the risk-free rate (Fama & French,
1992 and Athanassakos 2013), calculated by the following formula:
RMRFt = (Rmt – Rft)
Return of market t (Rmt): this ratio is calculated by the annual growth rate of VN-Index at
time t, the formula is as follows:
VnIndext  VnIndext 1 
R 
mt

VnIndext 1

PMARKETCAP: Size premium
This is the difference between the return of the small market capitalization stocks portfolio
and the return of the large-cap stock portfolio (Fama & French, 1992 and Athanassakos
2013), calculated by the following formula:
PMARKETCAPt = (Rst – Rbt)
Return of the small market capitalization stocks portfolio at time t (Rst) is the average annual
return of small market capitalization stocks listed on the Ho Chi Minh Stock Exchange.
∑i1 R ist nist
R st =
∑i1 nist
In which,
Rist is the return of i stock at time t in the small market capitalization stocks portfolio.
nist is the outstanding number of i shares at time t in the small market capitalization stocks
portfolio.
Return of the big market capitalization stocks portfolio at time t (Rst) is the average annual
return of big market capitalization stocks listed on the Ho Chi Minh Stock Exchange.
R bt

∑i1 R ibt nibt

=
∑i1 nibt

In which,
Ribt is the return of i stock at time t in the big market capitalization stocks portfolio.
nibt is the outstanding number of i shares at time t in the big market capitalization stocks
portfolio.
PPEG: valuation premium
This is the difference between the return of the stock portfolio with PEG greater than 0 and
less than 1 compared to the stock portfolio with PEG greater than 1 (Schatzberg & Vora,
2009 and Lynch, 1989), calculated by the following formula:
PPEGt = (Rlt – Rht)


17

Return of the portfolio of stocks with PEG less than or equal to 1 at time t (Rlt) is the average
annual return of stocks listed on the Ho Chi Minh Stock Exchange with PEG ratio less than
or equal to 1.
∑i1 R ilt nilt
R lt =
∑i1 nilt
Rilt is return of i stock at time t in the portfolio of stocks with PEG less than or equal to 1.
nilt is the outstanding number of i stock at time t in the portfolio of stocks with PEG less than
or equal to 1.
The return of the portfolio of stocks with PEG greater than 1 at time t (Rht) is the average
annual return of stocks listed on the Ho Chi Minh Stock Exchange with PEG greater than 1
R ht

∑i1 R iht niht

=
∑i1 niht

Riht is return of i stock at time t in the portfolio of stocks with PEG greater than 1.
niht is the outstanding number of i stock at time t in the portfolio of stocks with PEG greater
than 1.
PFSCORE: F_Score premium
This is the return difference of the stocks portfolio with high F_Score compared to the stocks
portfolio with low F_Score (Piostroski, 2000), calculated by the following formula:
PFSCOREt = (Rhft – Rlft)
Return of stocks portfolio with low F_ Score at (t) (Rlft) is the average annual return of stocks
listed on Ho Chi Minh Stock Exchange with low F_ Score.
R lft

∑i1 R ilft nilft
=
∑i1 nilft

Rilft is the return of i stock with low F_ Score at (t)
nilft is the number of i stock with low F_ Score at time (t)
Return of the stock portfolio with high F_ Score at time t (Rhft) is the average annual return
of stocks listed on the Ho Chi Minh Stock Exchange that has high F_ Score at the time (t)
R hft =

∑i1 R ihft nihft
∑i1 nihft

Rihft is return of i stock with high F_ Score at time (t)
nihft is the number of i stock with high F_ Score at time (t)

18

3.2.1.4. Expected sign of the variables in the model
Table 3.1: Summary of expected impact direction of variables in the regression model
Code

Variable

expected
impact
direction

Căn cứ

RIRF

Dependent variable

RMRF

Proportional
Independent variable
to RIFT

Theo Fama & French
(1992), Athanassakos
(2013)

Proportional

PMARKETCAP Independent variable
to RIFT

Theo Fama & French
(1992), Athanassakos
(2013)

PPEG

PFSCORE

Independent variable

Independent variable

Proportional
to RIFT

Theo Schatzberg và Vora
(2009) và Lynch (1989)

Proportional
to RIFT

Theo Piotroski (2000),
Mohr (2012), Galdi và
cộng sự (2013), Hyde
(2014) và Võ Thị Quý &
Bùi Thanh Trúc (2015)
Source: PhD student compiled

19

3.2.1.5. research process
The thesis implements the regression model according to the following research process:
Figure 3.1: Research process

Source: according to the PhD student
3.2.1.6. Regression models estimate coefficient
• Pooled OLS model
• Fixed effects model (FEM)
• Model of random effects (REM)


20

• System of GMM model
3.2.1.7. Testing the regression model defects
• Testing multi-collinear phenomenon
• Testing the heteroskedasticity
• Testing the autocorrelation phenomenon
• Testing endogenous phenomena
3.2.2. Research method of the impact of the investment horizon on the return of value
investing on Vietnam stock market
3.2.2.1. Foundations for building research hypotheses
With the goal of determining the direction of the impact of the investment horizon on the return
of value investment on the Vietnam stock market, the thesis expects that when the investment
term increases, the return of the value investment on the Vietnam stock market will also
increase. To solve this goal, the thesis use the research method of Li, Liu, Bianchi & Su (2012)

and Bennyhoff (2009).
3.2.2.2. The proposed research hypotheses
Based on the above 4 relationships, the thesis offers 4 research hypotheses as follows:
• Hypothesis 3.1: "The average annual return of the value stocks portfolio on Vietnam stock
market increases with the increase of investment horizon".
• Hypothesis 3.2: "The excess return of the value stocks portfolio in Vietnam stock market
compared to the risk-free rate increases with the increase of the investment horizon".
• Hypothesis 3.3: "The excess return of the value stocks portfolio on Vietnam stock market
compared to the market portfolio increases with the length of the investment horizon".
• Hypothesis 3.4: "The investment horizon is proportional to the Sharpe ratio of the portfolio
of value stocks on Vietnam stock market".
3.2.2.3. Steps to research
Testing hypotheses 3.1
Step 1: Sort out the portfolio of annual value stocks on Vietnam stock market based on 3
criteria of good quality stocks, trading below their intrinsic value and growth rate.
Step 2: Calculate the average annual return (returnHN(i)) of the stock portfolio by taking the
simple average of return of each value stock (returncp(j)) in the portfolio at the year which need
calculate.
Step 3: Calculate the average term return of the value stocks portfolio (returnKH(n)),
corresponding to the terms from 1 year to 5 years. If 𝑇𝑆𝑆𝐿𝐻𝑁 (𝑖) is a single return of the value
stocks portfolio in each year, then 𝑇𝑆𝑆𝐿𝐾𝐻(𝑛) is considered to be a double return of the annual
value stocks portfolio. The provisions on 𝑇𝑆𝑆𝐿𝐾𝐻(𝑛) to ensure the rationality for comparing
the investment efficiency of each different term. The thesis expects that 𝑇𝑆𝑆𝐿𝐾𝐻(𝑛) will be
proportional to the investment horizon.
Testing hypothesis 3.2
Step 1: Calculate the term return and the average term return of the value stocks portfolio.


21

Step 2: Calculate the term free- risk interest rate (RfKH) and the average risk-free rate in each
term 𝐸(𝑅𝑓𝐾𝐻(𝑛) )
Step 3: Calculate the excess between return of the portfolio against the risk-free rate at each
investment term.
This excess is calculated by taking the average term return of the value stocks portfolio in 5
periods minus the average risk-free rate in each respective period.
Step 4: Based on the calculated excess level, the correlation of this level and the investment
horizon will be considered to find the results for the third hypothesis. PhD student expects the
excess of return compared to risk-free rates will be proportional to the investment horizon.
Testing hypotheses 3.3
Step 1: Calculate the term return and the average term return of the value stocks portfolio are
implemented as formula (6) and formula (7).
Step 2: Calculating the term market return (RmKH) and the average market return at each term
𝐸(𝑅𝑚𝐾𝐻(𝑛) )
Step 3: Calculate the excess return between the return of the portfolio of value stocks compared
to the market return of each investment term.
Step 4: Based on the calculated excess, the correlation of this excess and investment term will
be considered to find the answer to the fourth hypothesis. The thesis expects that this excess
will be proportional to the investment horizon.
Testing hypothesis 3.4
Step 1: Calculate the risk of the portfolio of value stocks at each investment period
Step 2: Calculate the Sharpe ratio at each investment period
Step 3: Based on the calculation results above, consider the correlation of the Sharpe ratio and
the investment horizon to find the results for the fifth hypothesis. PhD student expects the
Sharpe ratio to be proportional to the investment horizon
3.3. Research Data
The research data includes 1,667 observations, synthesized in the period from 5/2007 5/2017, are businesses listed on the Ho Chi Minh Stock Exchange, collected from FiinPro
financial software, website. of listed businesses, website of Ho Chi Minh Stock Exchange and
IMF.

22

CHAPTER 4: RESULTS RESEARCH AND ANALYSIS
4.1. Impact of value factors and quality factors on returns of stocks in value investing on
Vietnam stock market
4.1.1. Statistical results the data
The data are all around the average value and are suitable for performing regression results in
the methods which PhD student will use.
Table 4.1: Statistics describing the variables in the regression model
Variable
Obs
Mean
Std. Dev.
Min
Max Skewness Kurtosis
RMRF
1667 -0.0783
0.2738
-0.7060 0.3826
-0.3316
3.1938
RIRF
1667
0.1307
0.6254
-0.9368 7.3384
3.1827
26.0126
PPEG

1667
0.0150
0.1046
-0.1467 0.1947
-0.0322
2.24237
PMARKETCAP 1667
0.1031
0.1631
-0.2196 0.5995
1.1564
5.8153
PFSCORE
1667
0.0038
0.0804
-0.2049 0.0938
-1.1419
3.4566
Source: Statistical results from Stata software
4.1.2. Result of testing the return of stock portfolios in value investing on Vietnam stock
market
4.1.2.1. Return of stock portfolio in value investing selected by PEG value factor on
Vietnam stock market
The average return of the stock portfolio is 15.42% higher than the average of the market
portfolio (-0.23%) is 15.65%.
Table 4.2: Comparison of return of value stocks portfolio and market return
Number of
Average return of
Market

Year
Excess
stocks
value stocks portfolio
return
2008
33
-30.59%
-44.28%
13.69%
2009
18
92.19%
-35.43%
127.61%
2010
64
-36.10%
63.13%
-99.23%
2011
61
11.99%
-11.38%
23.37%
2012
59
10.91%
-2.91%
13.81%

2013
54
44.58%
0.12%
44.46%
2014
80
29.89%
19.41%
10.47%
2015
117
25.90%
-3.50%
29.40%
2016
105
14.94%
12.74%
2.20%
Average
15.42%
-0.23%
15.65%
Source: PhD student calculations
T_test test shows that this statistical result is very significant with p-value of 0.0006 (see Table
4.3).


23

Table 4.3: T_test of return of value stocks portfolio value (with 0 return of market portfolio

Source: Results from Stata software
4.1.2.2. Return of stock portfolio in value investing when integrating F_Score quality
factor on Vietnam stock market
The excess profitability of the portfolio of value stocks with a high F_Score score
compared to the market return is 20.66% (see Table 4.5).
Table 4.5: Comparison of return of the stock portfolio with high F_Score and return of the
market
Average return of
Number of
Year
value stocks portfolio Market return
Excess
stocks
with high F_Score
2008
24
-22.43%
-44.28%
21.84%
2009
15
81.76%
-35.43%
117.19%
2010
50

-37.08%
63.13%
-100.21%
2011
45
20.81%
-11.38%
32.19%
2012
45
11.94%
-2.91%
14.84%
2013
47
46.04%
0.12%
45.92%
2014
65
37.66%
19.41%
18.25%
2015
96
35.45%
-3.50%
38.95%
2016
84

15.46%
12.74%
2.72%
Average
20.43%
-0.23%
20.66%
Source: PhD student calculations