Impact of foreign ownership on the firm-level stock return volatility in emerging countries: evidence from Vietnam
This study investigates the impact of foreign institutional ownership on firm-level stock return volatility in Vietnam, using a panel data of 298 firms listed on the Vietnam stock market for the period from 2007 to 2014. Vietnam is known as the third largest recipient that received investments from foreign investors in 2004 (Hafiz & Giroud, 2004). In addition, the change from a planned economy to a market economy has successfully increased the attraction of foreign investment in Vietnam. It is argued that ownership by foreign investors increases return volatility in emerging countries that significantly cause a downtrend in market returns or even financial crises (Stiglitz, 1999, 2000). Existing empirical evidence, however, is mixed. Bae et al. (2004) show that foreign investors reduce stock return volatility while Li et al. (2001) document an opposite effect. Empirical findings of this study suggest that foreign ownership decreases firm-level stock return volatility in Vietnam’s stock markets. Furthermore, I document a reduction in volatility between foreign shareholding and stock return volatility during the global financial crisis, suggesting the important role that foreign ownership plays in stabilizing stock return volatility in the Vietnam stock market.