Doctoral dissertation in finance performance of exchange traded funds tracking v

MINISTRY OF EDUCATION AND TRAINING VIET NAM NATIONAL ECONOMICS UNIVERSITY ` ee DO PHUONG HUYEN PERFORMANCE OF EXCHANGE - TRADED FUNDS TRACKING VIETNAM STOCK MARKET Major: FINANCE AND BANKING Code: 9340201 DOCTORAL DISSERTATION IN FINANCE - BANKING Hanoi, April 2019 MINISTRY OF EDUCATION AND TRAINING VIET NAM NATIONAL ECONOMICS UNIVERSITY ` ee DO PHUONG HUYEN PERFORMANCE OF EXCHANGE - TRADED FUNDS TRACKING VIETNAM STOCK MARKET Major: FINANCE AND BANKING Code: 9340201 DOCTORAL DISSERTATION Supervisor: 1. NGUYEN MINH HUE 2. PETER MOFFATT Hanoi, April 2019 DECLARATION I hereby declare that this doctoral dissertation “Performance of Exchange- Traded funds tracking Vietnam stock market” is my own work and effort. The dissertation has not been submitted anywhere for any award.

All the sources of information used have been well acknowledged. Iam responsible for my declaration. Date / /2019 Supervisor Signature Assoc.Nguyen Thi Minh Hue Do Phuong Huyen 1 ACKNOWLEDGEMENTS This dissertation would not have been completed successfully without Assoc. Nguyen Minh Hue who deserves most to be acknowledged in the research as she always motivated me with her unending support.

Her great interest in all aspects of my topics and her untiring effort, invaluable guidance helped me greatly in the understanding and writing of the dissertation. I am heartily thankful to Prof. Peter Moffatt (School of Economics, University of East Anglia, UK) who inspired me and gave me passion for a researching career as well as his patience to spend so much time discussing with me about econometric issues via Skype. I would like to express my great appreciation to Mr.Nguyen Van Duy — a STATA expert for his valuable and constructive suggestions during the planning and development of this research work.

His willingness to give his time so generously has been very much appreciated. I also extend my thanks to Ms.Nguyen Tra My who edited my work willingly and happily, Ms. Bui Ha Trang who always helps me actively in data screening, my academic colleagues from Vietnam National University, Hanoi — International School and all my friends who are always besides me and encourage me to go ahead when things are on the verge of slipping out of control. Last, but certainly not least, I would like to take this opportunity to convey my sincere thanks to my extended family and my husband, our children Mon and Anna as they always give me love and continuous moral support that gave me strength to complete this PhD degree.

ili TABLE OF CONTENT DECLAARA TIONN. 5< Ăn TH HH HH TH TH HH HT ng 00004 0500801000060004 i ACKNOWLEDGEMENTTS. TH T0 000 ii TABLE OF CONTENT. iii LIST OE ACRONYMS .- 5 <5 HH TH TH HT HH nợ v LÏSẤ OŸ ÍÏØ UTY€S.

T00 0 vi CHAPTER 1: INTRODUCTION. ETF Trends and Research Ínf€TF€Sf. Trends of the Global ETF marKe(. Trends of Vietnam E TI ImaTK€(.

Research Interest of Exchanged traded funds. Thesis finding and €onfriIfÏOTI. TH€SỈS” SÊTCÊUIFC. T0 00009 6 23 CHAPTER 2: LITERATURE REVIEW ON PERFORMANCE OF EXCHANGED TRADED FUND.

Exchanged traded fund — an innovative fñinancial instrument. Related literature on performance of exchanged traded fund. 33 Performance of ETFs can be considered through three aspects:. Related literature on performance of exchanged traded fund -Tracking 99/090050(060)7)12-200Đ 5.

Related literature on performance of exchanged traded fund - Pricing 0191910 001. Related literature on performance of exchanged traded fund - ETF effect on ll0ieiia AU101915g)4151-g 15. Vietnam literature on ETÌF§ .-- ¿-- + xxx HH Hiệp 51 3. Data description and SAINDÌC.

Tracking error of ETFs tracking Vietnam stock market. Pricing efficiency of ETFs tracking Vietnam sfock market. Liquidity effects on underlying assets after the introduction of ETFs DC1U s0 á[ost. CHAPTER 4: EMPIRICAL RESULTS AA.

Tracking error ccc. Tracking ©TTOT D€TSISfCTIC .-- - G1211 1 vn ng ng ngư 4. Pricing efficiency of ETFs tracking Vietnam stock market. Premiums/discounfS D€TSIS{€TIC€.

Liquidity effects on underlying assets after the introduction of ETFs tracking Vietnam sfOCk IMAT KC. “ CHAPTER 5: DISCUSSION AND CONCLUSIONS. 91 bo icon hố. Liquidity effects on the underlying stocks after the introduction of ETFs 101 5.

IIĐÏÏC2AfÏOINS. Vietnam domestic ETF market is potential and worth to develop. Vietnamese ETF may be attractive to foreign investors and be good 1nvestment to dormeSfIC IIV€SfOFS. NAV versus iNAV: need an insight understanding.

In-kind and in-cash redemption need more consideration. Physical replication vs synthetic replication: need to enhanced more In the T€UÏAf[OH.9 nh TH HT Họ TH HT ng 5.5- G5 G5 5 HH cọ TH TT 0 00 000 5. Limitation and recommendation for further research .--‹ LIST OF AUTHOR’S PUBLICATIONS RELATED TO THE THES .- GG cọ cọ THỌ cọ TH TH TH. TH cọ Ti LIST OF ACRONYMS AP Authorized Participant Bsp Basic point DBX DBX- FTSE Vietnam UCITs ETF E1VFVN30 | EIVFVN30 ETF ETF Exchange Traded Fund FEM Fixed Effect Model GLS Generalized Least Squares HNX30 HNX30 index HOSE Hochiminh Stock Exchange HSC Hochiminh City Securities Corporation iNAV Intrady Net Asset Value NAV Net Asset Value REM Random Effect Model TE Tracking Error SSI Saigon Securities Incorporation VCSC Viet Capital Securities Joint Stock Company VN30 VN30 index VNDS Vndirect Securities Corporation VNM VNM-Market vector Vietnam ETF Figure 1.

vi LIST OF FIGURES ETF market by asset category ($millions) as of January 31, 2015. 5 ETF market by geographicaÌ aT€a.- - s2 k 9g ng, § Market share percentage of total net assets of globally regulated open-end funds. 9 The ETFs’ change in total assets under management from 2016-2018 .12 DBX’s performance from 2008 to 2018 oo. ee ee eseeseceeeeetneeneeeeeeneees 15 Equity Basket Breakdown - DBX.- càng, 16 'VNM's performance from 2009 to 2018.

s6 2s + *svsserseesee 17 EIVFVN30°s performance from 2015 to 2018 .- -----<-+<=+++ 19 E1VFVN30’s performance from October 2017 to September 2018. 20 Growth of the U. ETE MarketpÌace.--- --- 5+ ‡seseeeserrrrsee 24 Exchange-traded Portfolios typ€s. -- -- 5c cnn site 27 ETF Creation and Redemption PTOC€SS.- s6 2s csesee 38 Daily TE on DBX ETF from July 10, 2009 to August 19, 2016.

70 Monthly TE on DBX ETF from July 10, 2009 to August 19, 2016. 70 Daily TE on VNM ETF from August 18, 2009 to August 19, 2016. 71 Monthly TE on VNM ETF from August 18, 2009 to August 19, 2016.71 Daily TE on EL VFVN30 from October 06, 2014 to August 19, 2016. 72 Monthly TE on El VFVN30 from October 06, 2014 to August 19, 2016.72 Discounts on DBX ETF from July 09, 2009 to August 19, 2016.

78 Discounts on VNM ETF from August 11, 2009 to August 19, 2016. 78 Discounts on E1 VF VN30 from October 06, 2014 to August 19, 2016 .79 Real time ETF trading quotes on HOSE stock exchange on September 26", 2019. 96 ETF Arbitrage Mechanism.cccecccccsseesseeeneceseeeeeeeeseeeseeeeseesneeeeaeenseees 98 vil LIST OF TABLES Table 1. ETFs by net assets, a net issuance of shares, and number of funds.2: Main characteristics of the ETTF marKet.3: Profile of ETFs tracking Vietnam stock market.4: Changes in AUM of ETFs tracking Vietnam stock market from 2016 to 2018.5: DBX’s trading UMmits 2.1: Transaction cost measures of |iqU1dÏty.-- 5 55 + se *+skEseeeeserserse 44 Table 2.2: Volume-related measures of liquidity.3: Multi-dimensional measures of liquidity .1: List of stock constituents of DBX FTSE Vietnam at the inception date MJn a0 1020.2: List of stock constituents of VNM ETF at the Inception dafe August 1 1, 2009.3: List of stock constituents of E1LVFVN30 ETF at the inception date October J0 .4: Description of var1abl€S .-- -- c2 11x 99212 1H nh nh nh ng net 64 Table 1p.6: Pearson Correlation mafr1X.1: Tracking error of ETFs tracking Vietnam stock market.2: Tracking error persistence of ETFs tracking Vietnam stock market.3: Discounts/Premiums of ETFs tracking Vietnam stock market .4: Discount persistence of ETFs tracking Vietnam stock market .5: A comparison of liquidity measures before and after the introduction of DBX.6: A comparison of liquidity measures before and after the introduction of VNM.7: A comparison of liquidity measures before and after the introduction of 282À2E600001557.8: Regression results of ETFs’ impacts to Absolute spread of stocks.9: Regression results of ETFs’ impacts to Relative spread of stocks.10: Regression results of ETFs’ impacts to Amihud’s illiquidity measure .1: Requirements of creation/redemption process Table 5.2: Commission fee of trading stocks and fund certificates Table 5.3: An estimation of ETF arbitrage COSf.

-- c1 re CHAPTER 1: INTRODUCTION 1. Rationale Exchange-traded funds (ETFs) are widely considered one of the most successful financial tools for index trackers. Exchange traded fund is a security tracking tool for one particular index like an index fund, however, it can also be traded on a stock exchange like a typical stock. ETFs allow investors to trade indices quite easily, in small amounts at significantly lower costs, rather than to replicate individual securities of a particular index.

At the end of September 2015, there were 5978 ETFs/ETPs (Exchange-traded Products) listed on over 61 exchanges with total assets of US$2. Recently, according to the global ETF research 2017 released by Ernst &Young (2017), total global assets under management of ETF promoters is US$4.4 trillion at the end of 2017, the cumulative average growth rate reached 21%. Together with the growth of ETFs in investors’ field, many studies of ETFs are significantly contributing to the financial literature. Meziani (2016) had wrote in his ETF book that there is a growing number of ETF articles published in international academic journals, particularly since 2006 and more and more PhD dissertations focused on the subjects of ETFs.

However, the number of empirical findings of Asian ETFs is still limited. Vietnamese investors have been aware of ETFs since 2008 but the six recent years have seen their particular attention to information related to ETFs, which led to adjusted investment strategies. It can be said that ETFs and their growth have strongly affected Vietnamese as well as global financial markets. The date 6" October 2014 has marked an important event as the first domestic ETF of Vietnam - E1VFVN30 tracking performance of VN30 index — was listed on Hochiminh Stock Exchange (HOSE, hereafter).

The initial capital raised in the IPO of E1 VFVN30 was VND 202 billion (US$ 9.6 million) in October 2014. However, on 28" May 2018, the total asset under management of E1 VF VN30 has reached VND 4,212.08 billion — more than 20 times higher in comparison to its first trading day (VFM, 2018a). The following paragraphs will proceed to review the current situation of ETFs on both global and national scales. It is hard to deny that ETF is becoming an innovative tool in Vietnamese stock market, however, empirical research about ETF in this market is extremely limited.

The thesis will fill the gap by conducting empirical research on Performance of exchange-traded funds tracking Vietnam stock market that focuses on three research strands including tracking error, pricing efficiency and liquidity effect on underlying stock after the introduction of ETFs. ETF Trends and Research Interest 1. Trends of the Global ETF market 1. Significant milestones in the Global market development History of global ETF market is summarized based on an ETF book of Meziani (2016).

From the fledgling creation in 1993, ETF finally took off in the late 1990s, it shaped the rise of a new concept in indexing that has enjoyed remarkable success to this day. The first ETFs were equity-based, but ETFs are now far more nuanced and include other asset categories. Although ETFs have become a mainstream investment tool for individual and institutional investors these days, the origin and birthplace of ETFs still leave rooms for debate. Their forerunners were the equity baskets that traded simultaneously in New York and Philadelphia.

Unfortunately, it was the controversy they stirred in their short 3-months existence that led to their disappearance. Because of that, for many, Canada is credited to be the true birthplace of ETFs, not the United State.