The nonlinear effect of internal financial factors on stock return: The case of Vietnam’s Banks and insurance companies

Abstract

This study explores the effects of internal financial factors on stock return of Vietnamese Banks and Insurance companies during 2008-2014 periods. The EGARCH-M (1,1) model with hetero-variance is used to analyze the predictive power of these internal factors to stock returns in the short run and the cointegration test and causality test are used to find their long run relationship. It is found that the higher stock return is significantly caused by lower debt ratio, higher short term account receivables, higher total asset and higher risk. These relationships evidently exist in both short-term and long-term in this group. This phenomenon is consistent with the case of other countries, except for account receivables. The empirical results of this study prove the efficient of Vietnamese stock market; at least it is right for the group of Banking and Insurance Companies.