000041372 UNDERSTANDING AND APPLYING OF FINANCIAL PRICING MODELS OF INVESTORS IN VIETNAMESE SECURITIES MARKET HIỂU BIẾT VÀ ỨNG DỤNG CÁC MÔ HÌNH ĐỊNH GIÁ TÀI CHÍNH CỦA NHÀ ĐẦU TƯ TRÊN THỊ TRƯỜNG CHỨNG KHOÁN VIỆT NAM
I n t r o d u c t i o n
Background
Vietnam's securities market developed comparatively late relative to global markets The first securities trading center (STC) in Ho Chi Minh City began operations on July 28, 2000 At the opening session, only two stocks were traded, with a total market capitalization of about USD 27.95 million Over five years, by the end of 2005, the number of listed companies rose to 32 and the market capitalization reached USD 398.96 million By the end of 2006, listings had grown to 56 and the total market capitalization was nearly double the 2005 level (SSC, 2006) Despite this growth, the market remained fairly thin.
The slow pace of the STC's listing activity—the number of listed companies—appears to be driven by several factors, with the primary one being that many firms have not yet recognized the value of listing on the stock market The market also remains thin, as indicated by the consistently small trading value on the STC, a consequence of a limited investor base and low trading volumes.
Investors are among the major participants in the securities market, and every trading activity involves both buyers and sellers who are equally important to market functioning The knowledge and understanding that investors have about market dynamics significantly influence the market’s development, and policymakers in any securities market will consider this understanding when issuing new rules and regulations.
Listed companies and their stock prices draw keen interest from both investors and market participants who track price movements to decide when to buy or sell Intrinsic value has long been a central focus of the securities market, guiding judgments about valuation Throughout centuries, renowned scholars have significantly influenced financial markets by developing methods to estimate the intrinsic value of stocks and bonds Today, the most famous models include the Dividend Discount Model (DDM), the Price/Earnings ratio (P/E), and Discounted Cash Flow (DCF) analysis.
Cash Flows (DCF) models are familiar to financial students in Vietnam, but the gap between theoretical understanding and practical application in daily stock trading raises societal concerns and frames the focus of this thesis The research investigates how investors interpret and use DCF analyses in real-market decisions, underscoring the need for clearer guidance and practical tools to convert cash-flow valuations into actionable investment strategies.
Problem statement
The Vietnamese financial market, including its securities market, is widely regarded as an emerging market within the Asian and global economy Global trends show that such markets often exhibit market inefficiencies that can generate excess returns for well-informed participants A young and developing securities market creates opportunities for investors who possess deep knowledge and are willing to act on those insights Conversely, when investors lack the required knowledge, they may rely on emotions or follow the crowd, leading to unprofessional investment behavior Since many investors aspire to achieve excess returns in this growing market, the question of whether investors are adequately educated about securities becomes increasingly important.
Knowledge about the securities market is broad, spanning the overall environment, trading procedures, market participants, listed companies and their performance, and the industry and economy as a whole Since no one can master all these areas, many investors lack the specific knowledge needed to choose the best securities This study concentrates on one essential aspect: pricing or valuation models Valuation methods such as the Dividend Discount Model, Discounted Cash Flows (DCF), and price-to-earnings (P/E) ratios are valuable tools When investors combine a solid understanding of the stock market with knowledge of these valuation models, they can make better investment decisions and aim for higher positive returns.
Understanding among investors in securities markets is a globally important issue, and as the Vietnamese securities market is in its early development phase, investor knowledge and the ability to apply pricing models become increasingly relevant This study investigates both the level of investors’ understanding and the extent to which they implement pricing models when trading securities in the Vietnamese market, offering insights into how pricing frameworks influence investment decisions during this developmental stage.
This study investigates how securities such as stocks and bonds are priced and describes several famous pricing and valuation models developed by renowned scholars The models provide a framework to estimate intrinsic value, which serves as the basis for comparison and decision-making for investors who rely on valuation theory to guide their investment choices.
Assuming that market prices may diverge from fair value, this study investigates how investors identify and manage their portfolios For individual investors, the research seeks to reveal the real motives for participating in the securities market and how they decide—whether based on knowledge of pricing models, access to sensitive information from various sources, or other bases such as technical analysis For institutional investors, regarded as more knowledgeable, the study first identifies how they apply these models in practice, and then clarifies what other factors influence their decision-making process.
Ultimately, the goal is to build an overall picture of investors in the Vietnamese securities market by examining how they understand and apply financial pricing models and how these insights influence their daily stock trading decisions The level of understanding and application of theoretical issues among investors is crucial for the healthy development of the securities market in Vietnam High-quality investors who effectively use pricing models and related financial concepts can foster firm, sustained growth and contribute to a stronger market infrastructure in the future.
This study begins with a literature review that identifies the core pricing models used in both international and Vietnamese financial markets These models are drawn from traditional textbooks, paper-based and online journals that have evolved over centuries to fit the current global market context The review also summarizes studies on the Vietnamese stock market conducted by analysts and experts from the State Securities Commission of Vietnam The literature is divided into two main areas: first, studies related to the Vietnamese securities market as a whole, its contributions to the industry, and its prospects for future development; second, studies focusing on investor factors in the market This section highlights research addressing investors as the central subject, reflecting its relevance to this study’s purpose and anticipated contributions.
This study employs empirical research to examine the methodologies used by investors in the Vietnamese securities market in their decision-making processes Data will be collected through two questionnaires distributed to fifty individual investors and two institutional investors Although the two questionnaires differ in their specific questions, they share a similar purpose: to capture general information about investors, including their understanding and use of valuation models in trading In addition, the questionnaires include a section on technical analysis to determine whether investors use technical analysis as a supplementary tool in evaluating securities.
1.5 S tru ctu re o f th e th esis
Chapter 2 discusses the significance o f the research, which will identify the significance o f the research topic and the rationale for the selection o f the topic This part explains why the research is o f significance.
Chapter 3 discusses the literature review that provides the core-pricing models used to calculate securities’ intrinsic value and some studies related to the research topic The valuation models are extracted from textbooks and web-based journals The literature review also consists o f studies and research about Vietnamese securities m arket and some studies related to the propaganda o f investors in Vietnam market.
Chapter 4 provides discussion about valuation process and pricing models that have been developed and applied in calculating the stock price The valuation process will be presented following top-down approach that will consider the aggregate economy, then examine alternative industry and finally analyze individual firms and their securities An analysis o f Dividend Discount Model and Price/Earnings ratio will be considered, as these are two o f the most common models for securities valuations.
Chapter 5 details the methodology applied in gathering and analyzing the information pertaining to security valuation and the application o f those valuations models o f investors in Vietnamese securities market All the empirical research including the research area, the survey and the questionnaire content and analysis are described and considered in this chapter.
Chapter 6 deals with the research findings that relates to investors, their understanding and applying of valuation models, the reasons o f participating in securities market and the use o f technical analysis as a supportive tools Those findings are drawn out from the questionnaire results.
Chapter 7 discusses the implications of the study findings, and since identifying future research opportunities is a key aspect of any research project, the next chapter of the thesis is devoted to outlining and identifying these opportunities for further investigation.
Chapter 8 provides a summary o f the overall research findings in terms o f the actual theory, and the practical application o f the theory by investors in Vietnamese securities market Future areas o f research are proposed in the conclusion o f this chapter, with the emphasis being on the developm ent o f new and more effective trading environment.
Methodology
This article presents a literature review of the core pricing models used in both international and Vietnamese financial markets, drawing from textbooks, peer‑reviewed papers, and credible web sources that have evolved over centuries and been refined to fit today’s global conditions The review also compiles studies on the Vietnamese stock market conducted by analysts from the State Securities Commission of Vietnam, categorizing them into two main areas: (1) the Vietnamese securities market as a whole, its contributions to the industry, and prospects for future development; and (2) investor factors influencing market behavior The section then summarizes research that centers on investors as the primary subject, which is particularly relevant to this study’s aims and contributions.
This study employs empirical research to examine the methodologies used by investors in the Vietnamese securities market for decision-making Data will be collected through two separate questionnaires distributed to fifty individual investors and two institutional investors Although the instruments differ in specific questions, they share the same overall objective: to profile investors and to assess how they understand and apply valuation models in their trading decisions The surveys also include a section on technical analysis to determine whether investors use technical tools to support their securities analysis.
Structure o f the thesis
Chapter 2 discusses the significance o f the research, which will identify the significance o f the research topic and the rationale for the selection o f the topic This part explains why the research is o f significance.
Chapter 3 discusses the literature review that provides the core-pricing models used to calculate securities’ intrinsic value and some studies related to the research topic The valuation models are extracted from textbooks and web-based journals The literature review also consists o f studies and research about Vietnamese securities m arket and some studies related to the propaganda o f investors in Vietnam market.
Chapter 4 provides discussion about valuation process and pricing models that have been developed and applied in calculating the stock price The valuation process will be presented following top-down approach that will consider the aggregate economy, then examine alternative industry and finally analyze individual firms and their securities An analysis o f Dividend Discount Model and Price/Earnings ratio will be considered, as these are two o f the most common models for securities valuations.
Chapter 5 details the methodology applied in gathering and analyzing the information pertaining to security valuation and the application o f those valuations models o f investors in Vietnamese securities market All the empirical research including the research area, the survey and the questionnaire content and analysis are described and considered in this chapter.
Chapter 6 deals with the research findings that relates to investors, their understanding and applying of valuation models, the reasons o f participating in securities market and the use o f technical analysis as a supportive tools Those findings are drawn out from the questionnaire results.
Chapter 7 offers a thorough discussion of the implications of the study’s findings, clarifying how the results influence theory, practice, and future research Because identifying future research opportunities is a vital part of any scholarly work, the next chapter of this thesis is dedicated to outlining and articulating these opportunities for further investigation.
Chapter 8 provides a summary o f the overall research findings in terms o f the actual theory, and the practical application o f the theory by investors in Vietnamese securities market Future areas o f research are proposed in the conclusion o f this chapter, with the emphasis being on the developm ent o f new and more effective trading environment.
R e s e a r c h s i g n i f i c a n c e
The significance o f the research topic
Although the securities market has centuries of history worldwide, Vietnam's market is still new to investors and corporations Even after six years of development, the Vietnamese securities market remains in the early stage of market formation To align with established global markets, a broad range of reforms is needed, and stakeholders must commit to sustained, long-term efforts to build a robust market ecosystem.
Among stakeholders in the securities market, investors play a central role as the primary trading counterpart The demand and supply for securities from investors helps determine the price of a specific security Investors are categorized into two types: individual investors and institutional investors Individual investors vary widely in age, knowledge, and educational background These investors place trades through securities companies, which in turn route their buy and sell orders to the trading center.
Market development hinges on the interactions between buyers and sellers, with investors in the securities market acting as both participants and market movers Because investors fulfill dual roles as buyers and sellers, their behavior significantly shapes market dynamics and development This study treats investors as the primary subject, analyzes their actions in trading, and identifies the factors that influence those actions, from psychological and informational factors to market conditions and regulatory influences.
2.2 R a tio n a le f o r to p ic selection
From a theoretical perspective, financial pricing models are among the most important topics in finance, providing the foundation for the performance and development of securities markets If investors understand and apply these models to securities trading, the quality of investments can improve, helping to advance the Vietnamese securities market.
In Vietnam, research on investors’ understanding and pricing models is scarce, leaving an incomplete picture of participants in the Vietnamese securities market—especially regarding their knowledge and educational background This study aims to examine both individual and institutional investors to identify how well they understand and apply valuation models in daily stock trading.
Where those models are not applied widely and commonly, the study aims to find out what is the basis for all the actions regarding securities trading.
Topic selection hinges on the availability of information sources General information about the Vietnamese securities market can be easily obtained from web-based sources, while data on individual and institutional investors can be gathered through questionnaire surveys, since individual investors are relatively easy to approach.
Contribution o f the research
Once the research is conducted, it will contribute partially to Vietnamese securities market, to investors, to listed companies and to policy makers.
Should the research successfully map investors’ understanding of valuation models, it will pinpoint knowledge gaps and propose strategies to build more knowledgeable investor groups, thereby supporting the sustainable development of the securities market and improving market efficiency and investor confidence.
This study aims to help investors in Vietnam's securities market deepen their understanding of securities trading, with a focus on pricing models and on technical analysis as an alternative to traditional pricing models.
Listed and potentially listed companies are aware of the factors that influence investors’ decisions and, consequently, the securities prices of their firms When they have access to information about these price-driving factors, they can adopt appropriate disclosure policies and actions to reveal necessary information and play a crucial role in guiding price movements in the market This research can also contribute to policy makers by clarifying their role in boosting public understanding of securities trading; policies, rules, or regulations issued without firm investor understanding are likely to be ineffective Policy makers should actively recognize the pivotal role of investors and help them build a solid foundation of market knowledge and comprehension.
This report draws on scholarly contributions from investor decision-making theory and valuation model theory Accordingly, the literature review synthesizes the key research findings and shows how they relate to the present study.
Since the early 2000s, a range of models has been developed to estimate the intrinsic value of stocks and firms Practitioners have gained experience in both the theory and practice of assessing a company’s financial health and applying contemporary valuation methods to determine a firm’s value or a stock price These core valuation models are widely used worldwide, including in Vietnam, underpinning investment decisions and financial analysis.
A review of the valuation literature shows that estimating the intrinsic value of a stock, a bond, and a firm rests on a set of fundamental concepts In the late 1930s, Professor John B Williams proposed a theory to value stocks by discounting a stream of dividends to infinity—the future cash flows paid to investors In the early 1960s, Gordon (1962) extended the dividend discount model by assuming dividends grow at a constant rate, giving rise to the Gordon constant growth model, which became widely used in investment management and has since been extended to accommodate dividends that grow at different rates Bond valuation follows a similar logic to the DDM: the bond's value equals the discounted stream of interest payments plus the final maturity value, both discounted at the yield to maturity, as discussed by Homer and Liebowitz (1972, chapter 11).
During the 1930s and 1940s, Graham and Dodd used fundamental security analysis to spot investment opportunities by examining a stock’s price-earnings multiplier Since then, interest in valuation multipliers has expanded, and today there are a variety of metrics such as price-to-book (P/B), price-to-sales (P/S), and price-to-EBIT These multiples are used to estimate a stock’s potential value, a concept highlighted by Damodaran in his work on equity valuation.
2001) There are many reasons for using multipliers to estim ate the value o f a stock but there are also shortcomings.
During the mid-1960s, Eugene Fama developed the efficient market hypothesis (EMH) framed as a fair-game model, arguing that security prices fully reflect all available information at any point in time He then subdivided EMH into three forms according to the information set used: the weak-form EMH, the semi-strong form EMH, and the strong-form EMH These insights raised important questions about the validity of Gordon's Dividend Discount Model (DDM), since they imply that beating the market using publicly available information may be unlikely.
During the late 1980s and early 1990s, several authors proposed a valuation model based on free cash flow to the firm Copeland, Kolier and Murrin (1994, p 500) defined the free cash flow to the shareholder of a bank, and a few years later Damadoran (1998, 2001) and Reilly and Brown (2000, p 798) presented a methodology for estimating the free cash flow to shareholders This model opens the door to another approach for estimating stock value by discounting the free cash flows at the required rate of return, enabling intrinsic estimates generated by two valuation models—the Discounted Dividend Model and the Discount Cash Flows Model—to be compared, provided the same required rate of return (k) is used.
In Vietnam, many article and research have been written on the Vietnamese securities market and its development.
Hoang (2003) gives a com prehensive guide to investors and policy makers in Vietnamese
An analysis of the securities market outlines the basis theory and arguments behind investment activities and identifies three investor groups: public sector (individual investors), institutional investors, and foreign investors It explains the influence and challenges each group brings to market dynamics, from access to information and regulatory hurdles for individuals and institutions to currency and cross-border risks for foreign investors The study shows how these investor types shape investment activity through their distinct preferences and constraints, while highlighting the difficulties they face in navigating policy, regulation, and market conditions It also pinpoints three major factors that significantly affect investment activity: government policy, the level of market efficiency, and investor psychology, which together influence price formation, risk appetite, and overall market behavior in the securities market.
Do, Vu (2003) identifies a set of factors that investors in the Vietnamese securities market consider important, focusing on the financial performance of listed companies, including risk, liquidity, and profitability indicators Building on these factors, the work examines how to systematically investigate and analyze the performance of firms after they go public It also presents analyses at the industry and macroeconomic levels, with applications to specific industries and to the Vietnamese economy.
Le (2004) analyzes investment activities in securities markets across several countries—America, China, and Japan—and derives six actionable lessons for Vietnam’s market The study examines how these economies developed their securities sectors and concludes that Vietnam should focus on forming a robust securities market, increasing the supply of securities, expanding demand for securities, strengthening the capacity of financial intermediaries, reorganizing the securities market to improve efficiency, and leveraging the role of commercial banks to support market development.
Dao (2004) investigates how to increase both the quality and quantity of investment activities in Vietnam's securities market, analyzing the current situation and the market's investment capacity The study proposes comprehensive development solutions, including strategies to expand demand and supply for securities, enhance information efficiency, and raise audit standards, as well as improvements for market organization and infrastructure to support sustained growth.
Besides studies relating to securities market and its development, there are many other research address the importance o f public sector in the developm ent o f the market.
Ta (2005) identifies several factors that influence investors’ participation in securities trading and examines Vietnamese investors’ knowledge, educational background, and investment purposes The study analyzes the relationship between investors’ education level and their knowledge of the securities market, and reviews international efforts to raise investors’ general knowledge with the aim of applying these best practices to the development of Vietnam’s securities market.
Mai (2005) has another research describes the understanding o f public to the securities market In her research, she investigates the knowledge o f people in Hanoi, people in Ho
C hi Minh about securities market Understanding about the m arket o f many companies in Hanoi and Ho Chi Minh is also a matter o f this research It is also mentioned in the research the current situation o f propaganda activities before, during and after the existence o f State Securities Commission (SSC) The research concludes with the solutions for propaganda activities for different age, different generation.
A n o v e r v ie w o f v a l u a t i o n m o d e l s
Valuation process
Before starting our discussion o f models to value a security, we first investigate the valuation process The m ost common approach is the top-down or the three-step approach It is widely used because it took into consideration the impact and the importance o f the econom ic and industry influences on individual firms and stocks The valuation process is like the chicken-and-egg dilemma (Frank, 2004) This means we can start by analyzing the macro economy and the firm ’s industry before any individual stocks or vice versa The top-dow'n valuation process is more appropriate because only after a thorough industry analysis, can we be in a position to properly evaluate the securities issued by individual firms within.
Regardless of a firm’s intrinsic qualities or management, the macroeconomic environment largely shapes its success and the return on investment In an economic expansion, owning shares of the strongest firms tends to boost sales and revenue, improving investment returns, while in a major recession the same stock can decline in price Therefore, valuing a security requires analyzing the overall economy, the conditions of security markets, and the firm’s specific industry Figure 1 outlines the recommended procedure for this analysis.
Figure 1: V a lu a tio n pro cess
\ A nalysis o f A lternative Econom ies and /
\ O b jectiv e: D ecide how to allo cate in v e stm e n ts /
\ F unds a m o n g an d w ith in co u n tries to /
\ B onds, sto ck s, and cash /
O b jectiv e: D eterm in e w h ich ind u stry w ill
P ro sp e r an d w ill su ffer on a , G lo b al b asis an d w ith in c o u n trie s ,
O b jectiv e: D e te rm in e w hich
\ A nd w h ich sto ck is /
The initial step in the valuation process is to identify the broad economic influences that must be considered, including government policies, the inflation rate, and other events such as wars, political upheavals in foreign countries, or international monetary devaluations These factors set the context for valuation decisions and guide risk assessment, forecasting assumptions, and the choice of discount rates and scenario analyses for robust financial projections.
Government policy, including tax credits, tax cuts, and tax increases, shapes spending behavior across the economy: tax cuts and credits boost demand, while higher taxes tend to dampen it These policy shifts ripple through all industries and firms, as changes in government spending—whether on defense, infrastructure, or social programs—alter overall economic activity For example, more road-building spending raises demand for construction equipment and materials, creates jobs for construction workers, and increases the purchasing power of suppliers’ employees, which in turn stimulates additional spending in related sectors Inflation matters because it creates a gap between real and nominal interest rates, and unpredictable inflation movements complicate firms’ forecasting and planning On the international front, inflation and interest-rate differentials influence exchange rates, which in turn affect a firm's receivables and payables and overall competitiveness in cross-border trade.
Beyond domestic government policy, wars and political upheavals in foreign countries reshape the business environment, increasing uncertainty about sales and earnings and pushing investors to require higher risk premia For example, the political uncertainty in Russia in 1993 raised perceived risk and led to a sharp decline in investment spending, while South Africa’s 1994 open elections were viewed as a positive development that boosted economic activity (Frank, 2004).
In short, it is difficult to consider any industry or com pany w ithout consideration of macroeconomic factors that affect the total economy.
In the valuation process, the second step is to identify industries with favorable prospects within the expected economic environment Industry conditions—such as strikes, import and export quotas or taxes, shortages or surpluses of key inputs, and government regulatory actions—can shape an industry’s profitability and risk Industry analysis should precede company analysis because even the best company can be a poor investment if it operates in a weak industry For instance, in the United States during the 1980s, weak sales and earnings in the farm equipment sector led to many bankruptcies; Deere & Company was a well‑managed leader in its industry, but its performance still lagged behind its past results and behind firms in other industries (Frank, 2004).
After confirming that an industry's outlook is favorable, the next step is to analyze and compare individual firms within the sector using financial ratios and cash flow data The goal of company analysis is to identify the top performer in a promising industry by evaluating both past performance and future prospects Once the firm’s outlook is understood, its intrinsic value can be estimated and then compared with the current market price to decide whether its stock or bonds represent a good investment opportunity.
The value of an asset is the present value of its expected returns, meaning it should deliver a stream of returns over the period you own it To convert this expected stream into a security value, we discount it at the investor’s required rate of return Consequently, the valuation process hinges on two estimates: the anticipated stream of returns and the required rate of return on the investment.
Estimating expected investment returns requires capturing not only the size but also the form, timing, and uncertainty of those returns, all of which shape the required rate of return Returns can appear as earnings, dividends, interest payments, or capital gains from increases in value, and different valuation techniques focus on different cash-flow forms For instance, some stock valuation models rely on a firm’s earnings, while others compute the present value of expected dividend payments Because money has a time value, the timing pattern of returns must be estimated, and all forms of cash flow should be considered to evaluate an investment accurately, especially under uncertainty about future returns.
An investment's required rate of return is determined by three elements: the economy's real risk-free rate of return, the expected rate of investment during the holding period, and a risk premium that reflects the uncertainty of returns (Frank, 2004) All investments are affected by the risk-free rate and by the expected rate of inflation, so the differences in required returns across opportunities arise mainly from variations in the risk premium attached to alternative investments.
After estimating the investment’s intrinsic value using our required rate of return, we compare this value to the prevailing market price The rule is simple: if the intrinsic value exceeds the market price, the asset is undervalued and may present a buying opportunity; if it’s below, the asset is overvalued and may warrant selling or avoidance; if they are about the same, the investment is fairly valued and could justify a hold.
• If Estimate Value > Market price: undervalued + buy
• If Estimate Value < M arket price: overvalued don’t buy
Consider a milk-producing firm listed on SSC By combining earnings estimates, growth projections from the annual report, and our required rate of return, we estimate the stock’s intrinsic value at VND 30,000 per share If the current market price is VND 25,000, the stock appears undervalued relative to its intrinsic value, creating a buying opportunity because you would pay VND 25,000 for a stock valued at VND 30,000; if the market price were VND 35,000, the stock would not be a buy because it trades above its estimated intrinsic value.
The investment process centers on comparing estimated values with market prices to assess a security's true worth Market prices are readily observable in the market, but the real task is to determine the intrinsic value—the estimated value that reflects fundamentals rather than short-term price moves By analyzing cash flows, risk, and other fundamentals, investors gauge whether a security is undervalued or overvalued and decide when to buy or sell.
Value theory offers diverse applications for alternative investments because of differing payment streams and security characteristics The interest and principal payments on a bond differ substantially from the expected dividends and future selling price of a common stock Because valuing common stock is more difficult, we first discuss the valuation of bonds and preferred stock before examining the valuation of common stock.
Valuation o f bonds
Since the size and timing pattern of a bond’s cash flows over its life are known, valuing a bond becomes relatively straightforward In a bond investment, you typically receive predictable benefits such as regular coupon payments and the return of principal at maturity, reflecting the fixed‑income nature of bonds This clarity in cash flows enables precise assessment of value, helps compare bonds, and informs risk and return expectations for investors seeking stable income.
1 Semi-annual Interest payments equal to one-half the coupon rate times the face value o f the bond; or annual interest payments equal to the coupon rate times the face value o f the bond.
2 The payment o f principal at maturity date
Take a 2005 VND 1,000,000 bond maturing in 2015 with a 10% annual coupon paid semi-annually It delivers VND 50,000 in coupon payments every six months for 10 years, plus the present value of the principal repayment, i.e., the present value of VND 1,000,000 due at maturity The only unknown in valuing this investment is the discount rate used to discount the expected cash flows If the current nominal risk-free rate is 9% and an investor requires a 1% risk premium for this bond, the required rate of return would be 10%.
The present value o f the interest payments in an annuity for 20 periods (every 6 months in 10 years) at one-half the required return (5 percent):
= 623,110.5 (VND) The present value o f the principal discounted ate 5 percent for 20 periods:
= 376,889.4 (VND) This can be summarized as follow:
• Present value o f interest payments = 623,110.5 (VND)
• Present value o f principal payment = 376.889.4 (VND)
• Total value o f bond at 10 percent = 1,000,000 (VND)
With a required rate of return of 10 percent, the fair price of the bond is the amount an investor should be willing to pay If the bond’s market price is higher than this value, it is overpriced and should not be purchased; if it is lower, the bond may be undervalued and worth considering.
Alternatively, assuming an investor requires a 12 percent return on this bond, it value would be:
Present value o f principal payment: 1,000,000 x —— ^ Q ^ y o ^ ^ 0 4 (VND)
• Total value o f the bond at 12 percent = 885,300 (VND)
Bond valuation shows that when an investor requires a higher rate of return, the present value of the bond’s cash flows falls, leading to a lower price for the asset In the example, a required return of 12% would value the bond at about 885,300 VND rather than 1,000,000 VND Therefore, investors should compare the computed present value to the bond’s market price to decide whether to invest.
Valuation o f preferred stock
Preferred stock is a perpetuity, since the owner is promised a fixed dividend for an infinite period, with payments due on specified dates just as with bonds However, unlike traditional bonds, preferred dividends are paid only after the firm has satisfied its bond-interest obligations, which prompts investors to demand a higher rate of return on preferred stock than on its bonds At the same time, the tax advantage of preferred dividends enhances demand for this security, helping keep its yield below that of the highest-grade corporate bonds.
Because preferred stock is perpetuity, its value is simply the stated annual dividend divided by the required rate o f return on a preferred stock (kp) as follow:
A preferred stock with a VND 100,000 par value pays an annual dividend of VND 8,000, and, given the expected inflation, dividend uncertainty, and the tax advantages for corporate investors, the investor’s required rate of return is 9%; the value of this preferred stock is approximately VND 88,889 per share.
To decide whether to buy this preferred stock, investors should compare the estimated value with the current market price If the market price is VND 95,000, the stock should not be bought; if it is VND 80,000, it represents a buying opportunity.
Valuation o f common s to c k
Valuation of common stock is more challenging than valuing bonds or preferred stock because it must account for multiple uncertainties—the size of expected returns, the timing of those returns, and the investor’s required rate of return By contrast, a bond’s valuation hinges on a single unknown: the required rate of return, which equals the prevailing nominal risk-free rate plus a risk premium; for preferred stock the unknown is the stock’s own required return, k_p Still, common stock can be valued using the same fundamental framework that underpins bond and preferred-stock valuation, allowing us to derive its present value from expected cash flows and the appropriate discount rate.
There are two streams of returns that can be discounted: dividends and earnings Investors who prefer discounting dividends view dividends as the actual cash flows they will receive, while others discount earnings because they are the source of those dividends The dividend discount model (DDM) is introduced first because it is intuitively appealing—dividends are the cash flows received—and because the DDM has been widely used in finance.
The dividend discount model (DDM) is one of the most common methods for valuing stocks by discounting all expected future dividends to their present value In its general form, the stock price today, P0, equals the sum of each expected dividend Dt discounted by (1 + r)^t, where r is the required return If dividends are expected to grow at a constant rate g, the Gordon growth model expresses P0 as D1 / (r − g) This framework links a stock's value directly to its projected dividend cash flows and the discount rate, highlighting how forecasted dividends and growth influence valuation.
K = required rate o f return on stock j
Under the dividend discount model for common stocks that pay dividends in perpetuity, the stock’s current value equals the present value of all future dividends If an investor holds the stock for only two years, the value realized from the investment is the sum of the discounted dividends received in years 1 and 2 plus the discounted value of the stock price at the end of year 2, which reflects the continuing dividend stream beginning in year 3 In formula form, P0 = D1/(1+r) + D2/(1+r)^2 + P2/(1+r)^2, where P2 is the price at t = 2, which for a perpetual growing dividend is P2 = D3/(r − g) (or P2 = D/(r) in the non-growing case) This framework shows how a finite holding period interacts with an infinite dividend stream in the dividend discount model.
' This model was initially set forth in J.B Williams The theory o f Investment value (Cambridge, MA: Harvard, 1938)
It was subsequently reintroduced and expanded by Myron J Gordon, The investment, Finance a nd Valuation o f the Corporation (Homewood, IL: Richard D.Irwin, 1962).
The value of stock j equals the two dividend payments in Years 1 and 2 plus the sale price at the end of Year 2 (SP) The expected selling price at the end of Year 2, SP2, is simply the value of all remaining dividend payments.
This equation is an extension o f the original equation W henever the stock is sold, its value will be the present value o f all future dividends.
Dividends appear in the equations not because investors only care about dividends and ignore capital gains, but because the capital gains component is shaped by dividend forecasts at the time the stock is sold The dividend discount model (DDM) holds that stock prices are the present value of cash flows to shareholders, which are dividends If investors never expected a dividend, the model would imply that the stock has no value To reconcile the DDM with the fact that non-dividend-paying stocks still have market value, we must assume that investors expect some future cash payout, even if only in the form of a liquidating dividend.
The co n stan t-G ro w th DDM
Equation (I) in its raw form isn’t very useful for stock valuation because it requires dividend forecasts for every year into the indefinite future To make the dividend discount model (DDM) practical, practitioners use simplifying assumptions such as a steady upward trend with dividends growing at a constant rate g each year For a dividend-paying stock with g = 0.05 and the most recently paid dividend Do = $4.00, the expected future dividends follow a predictable path: D1 = $4.20, D2 = $4.41, and in general Dt = Do × (1 + g)^t.
0 + ^ ) (l + ^) 0 + A)3 This equation can be simplified to:
Equation (2) defines the constant-growth dividend discount model (DDM), also known as the Gordon model, named after Myron J Gordon who popularized it In this framework, the stock’s present value is the value of a perpetually growing dividend stream, with V0 = D1 / (k − g), where D1 is the next dividend and k is the required return If dividends are not expected to grow (g = 0), the dividend stream becomes a simple perpetuity and the valuation simplifies to V0 = D1 / k (Bodie, 2005).
4.4.2 T h e p rice /earn in g s ratio - earning s m u ltip lier model
Rather than concentrating on dividends alone, many investors value common stock using an earnings‑multiplier framework For equity, the returns available to investors come from the firm’s net earnings, so value is determined by how much they are willing to pay for a dollar of expected earnings In short, a stock’s price reflects the market’s assessment of future earnings, captured by the earnings multiplier (often observed as the price‑to‑earnings ratio).
The price/earnings (P/E) ratio can be com puted as follow s:
Earnings M ultiplier = Price/Earnings Ratio
Current market price Expected 12 month earnings
This calculation of the current earnings multiplier, or P/E ratio, reveals investors’ prevailing sentiment about a stock’s value Investors should evaluate whether the ratio is too high or too low and decide if that level aligns with their valuation strategy.
As discussed earlier, the infinite period dividend discount model is:
If we divide both side o f the equation by E], expected earnings during the next 12 months, the result is:
Thus, the P/E ratio is determined by:
1 The expected dividend payout ratio (dividends divided by earnings)
2 The required rate o f return on the stock (k)
3 The expected growth rate o f dividends for the stock (g)
As an example, if we assume a stock has an expected dividend payout ratio o f 50%, a required rate o f return o f 13%, and an expected growth rate for dividends o f 10%, we would have the following:
After estimating the earnings multiplier, apply it to the next year’s earnings estimate (Ei) to derive the stock’s estimated value The current year's earnings (El) provide another valuation basis By using these two estimates, we compute an estimated value for the stock and compare it to its market price to assess potential mispricing.
Consider the above exam ple, with Eo = $2; g= 10% ==> Ei = $2.20.
And as our general rule, we would compare this estimated value o f the stock to its market price to decide w hether we should invest in it.
4.4.3 The two inputs for valuation models
For both the Dividend Discount Model (DDM) and the price-to-earnings (P/E) approach, the two key inputs are the required rate of return (k) and the expected growth rate of dividends or earnings (g) This section explains how to estimate these two inputs.
This discussion reviews the determinants o f the nominal required rate o f return on an investment The required rate o f return is influenced by three factors:
• The econom y’s real risk free rate (RFR)
Real risk-free rate (RFR) is the minimum return investors should require, and it hinges on the economy’s real growth rate because investment returns must grow at least as fast as the economy itself The RFR provides a baseline for pricing risk-free cash flows, reflecting the pace of real economic expansion over time In the short run, temporary tightening or easing in capital markets can move the RFR, causing brief deviations from its underlying trend.
We combine the first factor, the risk-free rate (RFR), with the second factor, the expected inflation rate, because inflation is the main driver that makes the nominal RFR differ from the real rate of return Therefore, if investors expect a change in the rate of inflation, they should increase their nominal required rate of return accordingly.
For example, if the real RFR were 3 percent and we expected the rate o f inflation during our investment period to be 4 percent, our nominal risk-free required rate o f return would
A good background for the nominal RFR rate is the current yield to maturity o f a government bond that has the same maturity as our investment has.
The equity risk premium is the extra return investors require to compensate for the risk of investing in equities, creating differences in the required rate of return across alternative investments This premium explains the variation in expected returns among securities of the same type, and it accounts for why different common stocks can have widely varying multipliers even when their growth prospects are similar.
Alternatives to pricing models - Technical analysis
There are two broad methods used to analyze securities and m ake investm ent decisions: fundamental and technical analysis The mentioned models in the previous part are fundamental analysis as it involves analyzing the fundamental characteristics o f a company such as accounting and finance information in order to estim ate its value Technical analysis is a completely different approach; it does not care about the "value" of a company In stead, technicians are interested in the price m ovem ents in the market and securities trading volum e over a period to work out the future trends o f securities prices, therefore, it can be best used when investors have limited know ledge about the companies
Technical analysis ju st studies the supply and demand in the securities m arket itself in order to determine w hat direction that the security prices will follow in the future It we understand clearly about the benefits and limitations o f technical analysis, we can have another set o f skills that enable us to be a better trader Therefore, in this section, we will discuss technical analysis with the use o f trend, volume and the use o f charts as supportive tools.
Trend is a core concept in technical analysis, describing the general direction in which a security or market is headed There are three main types of trends: uptrends, downtrends, and horizontal (sideways) trends Charts illustrate these patterns, with an uptrend showing higher highs and higher lows that reflect bullish momentum.
It is not hard to see that the trend in Figure 1 is up However, it is not always this easy to see a trend The chart below is an example:
F ig u re 3: A tre n d w hich is not clear to see
Chart by M e ta S to ck C opyrigh t 2 0 0 6 ln v e s t o p e d ia c o m
Stock prices often move up and down on a chart without a clear signal of which direction a security will head, making trend prediction difficult As Investopedia explains, trends aren’t always easy to spot and are classified by length into three types: long-term, intermediate, and short-term In the stock market, the intermediate trend typically lasts one to three months, while the long-term trend is formed by several intermediate trends, and a short-term trend covers the near term Figure 4.4 shows how these three trend lengths might look.
Figure 4: Short-term , m edium -term and long-term trend
In trend analysis, the duration of a trend signals its significance: longer trends tend to be more meaningful than shorter ones For example, a one-month trend is typically less significant than a five-year trend, underscoring the value of longer timeframes for reliable insights.
In technical analysis, price trends are the primary focus, but trading volume is also crucial Volume measures the number of securities traded over a given period, and higher trading volume usually signals greater activity and stronger market participation in the security.
Figure 5: A chart w ith volum e traded
Trading volume, shown at the bottom of the chart, mirrors price movements and helps confirm trends in technical analysis Volume is a key indicator because price moves on higher volume are generally stronger and more meaningful than similar moves on weak volume When prices make a large move, traders should check volume—the volume should rise with the trend: in an uptrend, volume should increase, and in a downtrend, volume should rise with selling pressure If prices rise but volume is unexpectedly low, it can signal a weakening trend and the potential start of a new price direction (Investopedia, p 10 of 22)
In technical analysis, a chart is a graphical representation of a series of prices over a defined period, enabling traders to visualize how an asset's value moves over time For example, a chart may show the movement of a stock price over a one-year period, with each data point representing the daily closing price.
Figure 6: Exam ple o f a basic chart
Figure 6 is an example o f a basic chart from Investopedia, it is a presentation o f the price movements o f a stock over a 1.5 period The bottom o f the graph is the date or tim e scale
The stock price is shown on the right-hand side, and by examining the chart you can see both the overall price trend and the detailed movements of the stock This information is valuable for investors, helping them forecast market directions and make informed buying or selling decisions.
Summary
Investors seek investments that deliver a return that compensates for the time value of money, expected inflation, and risk This chapter presents a valuation theory that derives an investment’s value from the investor’s required rate of return We argue that a preferable method is a top-down, three-step approach: first assess the macroeconomy and the overall market, then examine alternative industries, and finally analyze individual firms and their stocks.
Valuation theory guides decisions across bonds, preferred stocks, and common stocks Across multiple valuation models, the rule is consistent: compare the estimated value of an investment with its market price If the estimated value is higher than the market price, buy; if it is lower, do not invest.
We conclude the valuation process with a review o f factors that we should consider when estimating the required rate o f return on our investments and the growth rate o f earnings and dividends.
This article surveys common pitfalls in the dividend discount model (DDM) and the price-to-earnings (P/E) ratio to provide a more complete evaluation of these widely used valuation methods Despite these limitations, the analysis aims to stay grounded in real-world applicability by choosing the most reliable assumptions and data, ensuring both models remain practical tools for investors.
Technical analysis offers an alternative to pricing models by focusing on trend-based signals and chart patterns, which is especially helpful for investors with limited understanding of a company's fundamental information When we clearly understand both the benefits and limitations of technical analysis, we gain a broader set of skills that can enhance our decision-making and help us become better traders Used well, it provides practical tools to navigate markets and complement fundamental insights.
R e s e a r c h M e t h o d
Definition o f the research area
This study comprises two components: an empirical questionnaire distributed to individual investors in the Vietnamese stock market and a separate questionnaire administered to institutional investors, namely Bao Viet Securities Company (100% owned by Bao Viet Insurance since 2000) and the Bank for Investment and Development of Vietnam Securities Company (100% owned by the Bank for Investment and Development of Vietnam, a state‑owned bank, since 2000) Although the two instruments differ in the questions asked, their objective is identical: to provide an overview of investors’ knowledge, understanding, and application of security valuation models in their daily stock trading within Vietnam The detailed questions explore various facets of the respondents’ perspectives and practices.
• The general information o f the respondent such as age, education and career.
• How long have they been investing the Vietnamese stock market
• The methods used when they make any investment decision
• The methods used to calculate the stock’s intrinsic value
• The methods used to follow the stock price and trading volume
This two-part questionnaire begins with investor profiling and a baseline assessment of their knowledge and understanding of the market they participate in; the second, more targeted section explores how investing decisions are made and managed, with emphasis on pricing decisions and profitability considerations.
The survey
This section presents the research methodology used to address the study’s question, detailing the sample and target population, the research design and data collection methods, the pre-testing of the questionnaire and assessment of its validity, the results of content validity testing, and the subsequent analysis of the findings.
Zikmund (1947, p.471) defines the target population as the complete set of population elements relevant to the research For this study, the target population consists of all investors in the Vietnamese stock market, including both individual investors and institutional participants such as securities companies and fund management firms, who drive the market's traded volume At the time of the study, there were 52 listed companies (Appendix 1) and 19 securities companies (Appendix 2).
Investors are the central participants in the securities market and have the strongest interest in developing models that can identify mispriced securities Institutional investors, in particular, are the organizations with the resources to build applications that monitor market movements and uncover trading opportunities.
The sampling population for this study comprises two representatives from securities companies and fifty representatives of individual investors The study assumes that all investors play an equally significant role in the market and, therefore, are included in the random sample Consequently, ten individual investors from each of the five securities companies were randomly selected.
This study presents a cross-section of market participants, selecting two institutions that represent large-scale securities firms The research results are intended to provide a clear view of current thinking in securities trading and the factors that drive investment decisions Within this sample, each individual investor and one analyst from each institutional participant were asked to complete a Vietnamese-language questionnaire (see Appendix 3A and Appendix 3B), which was distributed directly to all respondents.
5.3.2 Research design and data collection methodology
Figure 5.1 bellow provides a process flow o f the methodology that has been applied in gathering and analyzing the empirical research o f this study.
Figure 7: The research methodology adopted in gathering inform ation
Structured iM iN a lttM M lJ
Validity pretest ' check the responses are
Zikmund (1997, p.48) frames research design as a master plan that specifies the methods and procedures for collecting and analyzing the information that underpins the study.
According to Leedy (1993, p 122), there are four research m ethodologies that are classified by the type o f data required, namely:
• The descriptive method: this method is appropriate for data derived from simple observational situations, such as physical observations or observations by questionnaires and poll techniques.
• The historical method: this method is applicable for the primary data that is primary docum entary or literature.
• The analytical method: this method is appropriate for data that is quantitative and that requires statistical techniques to extract its meaning.
• The experimental method: this method is appropriate for data derived from an experimental control situation or a pre-test design.
Based on the methodologies described above, this study uses a descriptive survey design because the required information is drawn from a large number of investors who share their experiences in securities trading A research questionnaire is identified as the most effective and appropriate data collection method, enabling efficient gathering of insights from many respondents and avoiding the impracticality of conducting structured interviews with nearly a hundred individuals.
The following aspects raised by Zikmund (1997, p.835) were considered in designing the questionnaire:
• Questions should not be ambiguous,
• Assumptions should not be made, and
• Questions should be designed in a manner that allows the respondent to complete the questionnaire in a short period o f time.
Most questions in the survey were closed-ended, which simplifies data collection and enables quick, quantitative analysis In some instances, respondents were asked to express an opinion or provide alternatives not offered in the questionnaire, highlighting the need for occasional flexibility beyond fixed options Closed-ended questions are preferred because they provide consistent response choices, ease data coding and aggregation, and allow reliable cross‑case comparisons, making survey design and data analysis more efficient for actionable insights.
• Keeping the questions simple so that the respondents can answer without the presence o f an interview, and
• Focusing the respondents’ attention to specific issues that need to be addressed, by means o f structured questions
The opened-end questions were used when standard alternatives were not available and respondents were expected to provide diverse responses.
The questionnaire comprises two sections: the first collects general information about Vietnamese investors, including age, education, and the nature of their business; the second examines various pricing models and the decision-making processes these investors use In the second section, questions are standardized as much as possible, with a focus on investors’ knowledge of pricing models and the factors that influence their decision-making.
5.3.3, Pre-testing the questionnaire and the validity o f the questionnaire
Zikmund (1997, pp 402–404) argues that pre-testing a survey should use a sample whose makeup mirrors that of the eventual respondents The purpose is twofold: to verify that respondents can navigate the questionnaire layout and answer questions without confusion, and to ensure the items are relevant and sufficiently cover all dimensions of the research.
Pre-testing was conducted on a sub-sample of five respondents (10% of the total sample) These participants completed the main questionnaire (Appendix 3A) In addition, each pre-testing respondent completed a second questionnaire (Appendix 3C) to assess content validity The findings from the diagnostic questionnaire are presented as frequency distributions for each item, yielding a clear picture of respondents’ views.
5.3.4 Results o f th e co n ten t validity testing
There were 5 individual investors that were asked to com plete the content validity questionnaire before the general distribution to the remaining respondents The results can be summarized as follow:
1 All the respondents felt that the questionnaire was in the appropriate manner.
2 All the respondents felt that the purpose o f the questionnaire was clearly understood.
3 Four o f the respondents had the opinion that all the questions were clear The view o f one respondent was that less focus should be given to the technical analysis However, besides this comment the respondent was com fortable that the questions were clear The questions were therefore not altered as the result o f this comment because the information about technical analysis was useful in determining w hether investors have alternatives in their price analysis.
4 All o f the respondents were o f the opinion that there were no am biguous questions in the questionnaire.
5 All the respondents felt that the questions were relevant with all investors.
6 All o f the respondents felt that the questions were not too sensitive and they could share the information
7 The average tim e taken to complete the questionnaire was about 10 minutes.
With this result o f the pre-testing, we continued with the general distribution o f the questionnaire to 50 individual investors and 2 institutional investors to generate the main findings o f the research.
Questionnaire content
The stock market has developed for more than a hundred years worldwide; however, in Vietnam the first stock exchange committee was established in Ho Chi Minh City just six years ago, indicating that the Vietnamese stock market is still in its early stage of development This study aims to establish a general understanding of the current investors in the market, including their average age, educational background, and current occupation The questionnaire is designed to determine whether investor quality is adequate to support further substantial development of the Vietnamese stock market.
5.4.2 M ain co n ten t o f th e q u estio n n aire
This study examines whether Vietnamese investors have traded securities over a long period in relation to the development of the Vietnamese stock market For respondents who have not sustained long-term trading, the survey investigates the reasons behind their shorter market engagement For those with long-standing stock market experience, the questionnaire identifies the factors that have kept them trading for an extended period The results are presented in straightforward statistical form, reporting the number of years or months each respondent has participated in the market.
This section analyzes the current knowledge background of Vietnamese investors and how it relates to maximizing returns Investors acquire knowledge about stock prices and the stock market through self-study or formal coursework; those who have completed classes focused on the stock market tend to have a deeper understanding and trade based on their knowledge and analysis rather than on emotions or the actions of other investors Survey responses indicate that respondents with stock-market knowledge can provide more relevant answers, particularly regarding pricing and valuation models For the majority who report no coursework in stock market topics, the questionnaire probes why they entered a new investment field without formal training The findings are reported using frequency distributions.
Research in this area aims to uncover the reasons behind stock market participation and investing, with key factors including a peer introduction, the stock market’s relevance to respondents’ educational background, and the perception that stock market investing offers a favorable investment opportunity.
Respondents may select more than one answer, which is a logical and relevant approach for capturing multi-select responses The results for this question are presented as frequency distributions, reflecting how often each option was chosen by respondents.
When trading securities, investors base their buy or sell decisions on several background factors, most prominently the company’s reputation, its financial performance, the current price of the security, and guidance from experts The survey uses closed-ended questions with an optional open-ended section for additional ideas and discussion Respondents are welcome to express ideas if they do not rely on the listed factors, and those who identify other factors are invited to discuss them further The resulting data are then analyzed and presented as a frequency distribution.
Investors require capital as a fundamental condition for participation in the stock market, a factor that also shapes policy decisions and corporate strategy Each investor pursues profit through a distinct approach tailored to their goals A positive return is typically achieved by buying and selling the right stock at the right moment, though some traders rely on intuition about price movements, a strategy that may pay off only when timing coincides with luck Knowledge and understanding of the stock market and how stock prices are formed also contribute to higher returns, yet translating theory into profitable practice—especially in the Vietnamese market—does not always succeed Flexibility to monitor and act on timely information from listed companies can further influence outcomes, and there are likely many other background factors at play While high returns can emerge from a mix of these elements, the study aims to identify the most basic and common drivers and to explore other contributing factors, with results presented as frequency distributions of respondents’ answers.
Investor’s understanding and applying o f price valuation models
Giving the right investing decision is not an easy task for every investor In fact, buying and selling a stock largely depends on stock price movements If investors understand price models, they can see how stock prices are calculated and identify price levels at which to buy or sell To investigate the level of investor understanding about stock prices and how this knowledge is applied in daily trading, three questions were developed The first question asks which model is most commonly used to price stocks; it is a closed-ended question, though respondents may mention additional models not listed in the options The second question directly asks whether investors apply pricing models to estimate a stock’s intrinsic value before making investment decisions When investors apply any of the mentioned models, they are asked to self-evaluate the accuracy of those models These questions are posed in a closed-ended format, and the results are reported as a frequency distribution.
Technical analysis - an alternative to valuation models
Technical analysis provides an alternative to traditional pricing models by identifying trends in securities based on trading volume over a defined period, rather than relying on fundamental information such as financing and accounting ratios Investors use this approach to forecast future stock prices and guide their investment decisions To assess whether investors understand stock movement or technical analysis, the study focuses on how they monitor stock prices and whether such monitoring helps identify price trends, as well as how long they watch price movements When respondents report that they monitor and analyze prices regularly, the survey also asks whether they use software or tables to assist tracking Those who do not use any tracking technique are not asked about monitoring duration or the use of tools The results are presented as a frequency distribution reflecting the sample’s views on the use of technical analysis.
Data collection took place over two weeks, from October 9 to October 20, 2006 The plan was to finish in one week, but the target sample of 50 individuals could not be reached, so data gathering extended into the second week to ensure enough input for reliable findings Throughout this period, only questionnaires were used, distributed to investors, as this method was more useful and convenient than web-based surveys, telephone interviews, or email statements.
To reach a target population of fifty individual investors, we randomly selected ten investors from each of five prominent securities firms to distribute the survey The data collected were then analyzed statistically using SPSS or Excel to generate the results The data collection methodology is summarized in the following figure.
Sample target selection and questionnaire distribution
Statistical analysis by SPSS and/or excel r
Descriptive statistical mÊkÊ Ht0g|HMHH!
Mean and histogram to describe central tendency
For this study, the questionnaire comprises thirteen questions designed to identify Vietnamese investors' basic information, including age and educational background, as well as their trading experience, knowledge, and reasons for participating in the stock market It also probes the background behind their securities selection and their return expectations, assesses investors' understanding and application of valuation models in daily trading, and examines their use of technical analysis.
5.4.3.1 In v e sto rs’ basic inform atio n
The investigation begins with classifying key investor demographics by gathering basic information about investors To support this effort, respondents were asked to provide comprehensive data on age, occupation, and educational background for the period under study.
Thedata was requested and provided in the following format:
Information forms the basis of the theoretical framework for investor decision-making and their understanding of the stock market and its pricing models in detail The study collects demographic data, including age, and presents these findings through SPSS-based statistical analysis, using frequency distributions to summarize the responses.
T ab le 2: Age D escriptive Statistics
N M in im u m M ax im u m M ean Std D e v ia tio n
According to the frequency and descriptive, the information o f investors’ age can be summarized in the following table with the minimum age is 23 and the maximum age is 58.
• Job: Respondents’ current jobs are defined into three sectors: econom ic, other sector and no official jo b at The data collected are also presented as frequency distribution by SPSS:
Frequenc Valid Cum ulative y Percent Percent Percent
An analysis of the current job frequency distribution shows that the majority of individual investors, 74%, are employed in business or economic sectors; 14% work in other sectors of the economy, and 12% have no additional job.
Summary o f research methodology
This chapter outlines the data collection methods used in this study Given the involvement of numerous individual and institutional investors, a self-administered research questionnaire was chosen as the most effective mechanism to gather information relevant to investors’ decision‑making processes.
This questionnaire collects general information about Vietnamese investors and examines the methods, processes, and actions they use when participating in the Vietnamese securities market, as well as their knowledge of pricing and valuation models and technical analysis.
This research analyzes how trading experience and general knowledge influence investors' decision-making processes and emphasizes the importance of understanding and applying valuation models and technical analysis to support securities trading By identifying these factors, the study offers insights for improving decision quality, risk assessment, and strategy development in financial markets.
The inputs that are required for the identification are sourced from investors themselves
Investors in the Vietnamese market are not easy to approach, so it is necessary to visit a number of securities companies around Hanoi to collect the required data The investor outreach occurred over a two-week period beginning on October 9, enabling direct engagement with local market participants and the accumulation of essential insights.
Results for each survey item are calculated after all required inputs are collected, and the data are presented through frequency distributions in SPSS This chapter provides initial analyses of the results, and the relationships among the questions and the final findings are explored in the following chapter.