ACCEPTABILITY OF THE TREND FORECASTING MODEL USING THE TIME SERIES ANALYSIS OF STOCK INDICES _ A DISSERTATION Presented to the Faculty of the Graduate School Southern Luzon State University, Lucban, Quezon, Philippines in Collaboration with Thai Nguyen University, Socialist Republic of Vietnam _ In Partial Fulfillment of the Requirements for the Degree Doctor of Business Administration _ By DAO THE HUY (IT) December 2013 i Chapter INTRODUCTION To industrialize and modernize the country requires an effort to maintain stable economic growth and restructure the economy to enhance its efficiency and competitiveness, Vietnam needs huge capital investment Therefore, building the securities market in Vietnam has become an urgent need to mobilize mid-term and long-term capital within, as well as outside the country into economic investment through debt and capital securities In addition, equitization of state-owned enterprises along with the establishment and development of the securities market has created a more open and healthy business environment On July 10, 1998, the Prime Minister signed Decree No 48/1998/NDCP on the stock and securities market and a decision to set up two securities trading centers in Hanoi and Ho Chi Minh City (The Vietnam STATE SECURITIES COMMISSION (SSC), 2012) On July 20th 2000, the Ho Chi Minh City Securities Trading Center officially commenced operation and executed the first trading session on July 28, 2000 with two types of listing stocks After seven years of growth and integration into the global securities market, the government signed Decision No 599/QD-TTg on May 11, 2007 to transfer the Ho Chi Minh City Securities Trading Center to Hochiminh Stock Exchange (HOSE) On August 8, 2007, Hochiminh Stock Exchange was officially opened Hanoi Stock Exchange (HNX) was established by Decision no 01/2009/QĐ-Ttg dated January 02, 2009 by the Prime Minister of Vietnam on the grounds of transforming and restructuring Hanoi Securities Trading Centre Hanoi Securities Trading Centre (HASTC), which was founded in compliance with Decision No.127/1998/QĐ-TTg dated July 11, 1998, has gone live since 2005 organizing share auctions and bond biddings It also provides a secondary market for both stocks and bonds as its major activities Hochiminh Stock Exchange has experienced encouraging growth On August 31, 2012, it has listed 303 stocks with a total capitalization value of VND 154,137,023.19 billion and Hanoi Stock Exchange (HNX) has listed 397 stocks with a total listed value of VND 84,511,094.02 billion (The Vietnam STATE SECURITIES COMMISSION (SSC), 2012 ) In the near future, the number of listed stocks on HOSE and HNX will increase quickly because the government has a policy to equitize a number of large companies and stateowned commercial banks which will be listed in the market The primary purpose of this research was to assess the Time Series Analysis Model which the researcher has developed to help investors know how to recognize the trend of the market and to provide objectiveness in the decision-making process There are more than 700 stocks (State Securities Commission of Vietnam, 2012) for investors to choose from and this research will help investors to make an informed decision when they take actions to buy or sell stocks In Vietnam, the traders mostly buy or sell by emotion or rumors especially individual investors, therefore they almost always make a low profit or a loss There are many technical indicators to support investor decision but these six indicators that the author used to build the Time Series Analysis Model have not been combined in any model before, and so their usefulness as a combined set of indicators has not yet been identified The researcher has more than five years of experience in stock trading in the Vietnam market and realizes the efficiency of technical analysis, which uses a number of core calculations based on statistical functions such as Simple Moving Average, Exponential Moving Average (EMA), simple moving average plus standard deviations, and simple moving average minus standard deviations This research will apply statistical functions to find the trend of Hose and Hnx and to support trading decisions Background of the Study Normally, the respondents would need to consider the following questions, so that they can not only make trading decisions, but also assess any trend prediction model that they use: What is the current trend of the Vietnam stock index? 1.1 Uptrend 1.2 Downtrend 1.3 Sideways trend What are the key variables that influence the technical analysis of the stock price? 2.1 Open price 2.2 High price 2.3 Low price 2.4 Closed price 2.5 Volume 2.6 Date What action should the investor take with each specific stock in each period? 3.1 Buy 3.2 Sell 3.3 Wait and hold the money The TSA Model is designed to assist the investor to answer these questions Currently some investors not use any model, and of those that use a model, the indicators are often used separately and sometimes these indicators are used incorrectly There are about 2000 technical indicators and most investors usually not know what the indicator means, how to use the indicator exactly, or how to combine the technical indicator in trading stock For stockbrokers, they use a variety of indicators, but they not have a comprehensive model that uses such a broad range of indicators together It is expected that the TSA Model will improve this situation for both investors and stockbrokers The 2005-2009 period is considered as an acceleration phase of the Vietnam stock market with breakthrough growth The rate of capitalization/GDP far exceeded the development strategy of the market by 2010 (at 10-15% of GDP) (Source: Vietnam State Securities Committee, 2012) With the market size in this period the number of securities companies and investors also grew strongly In 2000, there six were only s securities companies with capital stock average no more than VND 50 billion and by the end of 2009 there were 105 securities companies with average capital of VND 175 billion, of which some of the larger companies were JSC Saigon Securities (SSI) with VND 1,000 billion and ACB Securities (ACBS) with VND 1,500 billion During this period, in addition to growth, the stock market also experienced a strong change in management when the Securities Law took effect in January 2007 In 2007, HCM City Securities Trading Center was transformed into Ho Chi Minh City Stock Exchange (HOSE) to make it more active in management, contributing to market development In 2008, although Vietnam's stock market was heavily influenced by the global economic downturn, the average transaction volume in HOSE remained at 13 million units/session, deploying online transactions, joint continuous orders contributing to the operation of market transactions In 2009, the policies of government stimulus and signs of economic recovery helped the market to flourish again By the end of 2009, the total market capitalization was 620 trillion, equivalent to 38% of GDP (State securities commission of Vietnam, 2012) In the last three years, the boom is Vietnam's stock market has fed a storm of forecasts about market trends, stock prices and recommendations to buy, sell or hold specific stocks So much information has become "disturbing" to investors, resulting to investors not knowing what they should If they make decisions following this plethora of advice, they will always lose So how can investor build an appropriate strategy, and make the correct trading decisions? Particularly dangerous are forecasts made by word of mouth, via email, telephone, message broker, analyst, consultant companies and securities investment companies, because this wave spreads information as fast as "oil slick" Currently, there are many ways to analyze and forecast rumored style, jamming, and even forecast nature impose for on investor psychology, leading investors grab market share or attempt situations that create misunderstandings and major; distortions of the stock market in order to profit The Vietnam stock market has flourished both in number of listed stocks and the quality of shares listed over time This is good opportunity for stock investors, but it is also quite risky if investors are not equipped with the right knowledge and proper investment strategy Having all these premises in mind, the researcher attempted to apply his knowledge of probability statistics into technical analysis to help investors identify the trend of the Vietnam stock market index and to support their trading decisions Objectives of the Study The main purpose of this research was to assess the acceptability of the Time Series Analysis Model using six statistical indicators of the trend of the Vietnam stock index trend and apply these indicators to each separate stock to help investors make trading decisions (buy/sell/hold) To assess the usefulness of the TSA Model in terms of: Profile of the respondents Reliability Efficiency Availability of required software and input data? Level of acceptability you experience when you use the TSA model in assisting you to make investment decisions? Hypothesis of the Study The hypothesis itself is a null hypothesis, ―There is no significant difference in the level of perceptions among the groups of respondents‖ The model uses six nominated indicators to predict price rises and price falls on the Hose and HNX stock exchanges of Vietnam The respondents are assessing the reliability and usefulness of the Time Series Analysis Model for decision making for trading actions (buy/sell/hold) The level of acceptability of the trend forecasting model using the Time Series Analysis of stock indices is dependent and affected by the reliability, efficiency and availability variables Significance of the Study This study which aimed to assess the perceptions of users of the TSA Model, used the model to discover the trends of the Vietnam stock index by using time series analysis in technical analysis and in supporting trading decisions This study would be beneficial to the following: Stock investors It is hoped that the study may contribute to more informed decisions for traders In stock investment, the action to buy, sell or wait is a vital decision but the challenge for the investor is to find the proper point for trading This research will give the trader a tool or an analysis method to find the trading point for stocks in the Vietnam stock market Stock Analysis Teachers The outcome of the study may be of great help to teachers of stock analysis as they will gain more understanding in the use of technical analysis using time series analysis for stock trading The researcher may contribute to a new avenue in his search for better ways to improve oneself and the work environment In this way, it would ultimately lead to a more efficient trading in the teaching of stock analysis Finance Students They will benefit from this study since their main concerns in technical analysis are what they can apply in stock investment or commodities trading by analyzing historical data The researcher hopes that the results and findings of the study will bring understanding and inspiration to students to further study this field Future Researchers This study could provide a reference for future proponents who wish to venture into a study related to this ongoing research Thus, using time series in technical analysis of stock trading could serve as a valuable resource for future studies Scope and Limitation of the Study The primary aim of this study was to assess the reliability and usefulness of the TSA Model, which applies time series analysis in technical analysis to identify the trend of the Vietnam stock index and support trading decisions This research surveyed a limited number of investors and stockbrokers, and thus it gave the perceptions of a sample of the investment trading community, it did not give the broad perceptions of the whole investment trading industry The model uses the historic data of the Vietnam stock index including: Vnindex for Hose and Hnindex for HNX from the years 2007 to 2013 About seven hundred (700) stocks were used as respondents in this study The use of time series analysis for technical analysis in this research included the following instructional variables: open price, high price, low price, close price, volume and date of trading The limitation of using time series analysis for forecasting the trend of stock market and for supporting trading decisions is that it can be dangerous to depend totally on the assumption that today's prices can predict future prices They often do, but not necessarily The time frame of this study covered from March 2011 to March 2013 134 REFERENCES Alvin, M., (2012) Definition of 'Downtrend', Retrieved July 23, 2012 from http://www.investopedia.com/terms/d/ downtrend.asp Anderson J., (2012) Definition of 'Resistance (Resistance Level)', Retrieved July 22, 2012 from http://www.investopedia.com/ terms /r/resistance.asp#axzz23yUHCmv7 Adkins, T., (2012) Definition of 'Retracement' Retrieved July 21, 2012 from http://www.investopedia.com/terms/r/retracement.asp#axzz23yUHCmv Adkins, T., (2012) Support (Support Level) Retrieved July 21, 2012 from http://www.investopedia.com/terms/ s/support.asp Adkins, T., (2012) Definition of 'Support (Support Level)' Retrieved July 21, 2012 from http://www.investopedia.com/terms/s/support.asp# axzz23yUHCmv7 Brown, Constance M (1999) Technical Analysis for the Trading Professional Irwin Trader's Edge Series, McGraw-Hill, Isbn13: 9780070120624 Brown, Kedrick F (1975) Trend trading: timing market tides, Wiley, ISBN-13 978-0-471-98021-6 Chan, S and Lu, M (2004) Understanding internet banking adoption and use behavior: A hong kong perspective Global Information Management, 12(3), 21-43 Elder, A (1993) Trading for a living Psychology, trading tactics, money management, Wiley Edward, Gately (1997) Forecasting Profits Using Price and Time, Wiley, ISBN: 978-0-471-15539-3 Elliott, N (2007) Ichimoku Charts An Introduction to Ichimoku Kinko Clouds, Harriman House, ISBN 1-897-59784-3978-1-897597-84-2 Garfield, MJ (2005) ―Acceptance of Ubiquitous Computing", Information Systems Management, 22, 4, 24-31 General Office for Population and Family Planning, (2013) Population structure by sex age group and sex ratio Retrieved July 16, 2013 from http://www.gopfp.gov.vn/solieu?p_p_id=62_INSTANCE_77Ys&p_p_life cycle=0&p_p_state=maximized&p_p_mode=view&p_p_col_id=column 3&p_p_col_count=1&_62_INSTANCE_77Ys_struts_action=%2Fjournal 135 _articles%2Fview&_62_INSTANCE_77Ys_groupId=18&_62_INSTANC E_77Ys_articleId=389123&_62_INSTANCE_77Ys_version=1.0 Knight, T.(2007) Chart your way to profits: the online trader’s guide to technical analysis, Wiley , ISBN: 978-0-470-04350-9 Larson, Mark L (2001) Technical Charting for Profits, Publisher: Wiley, New York, NY, USA, ISBN: 9780471437987 Monte, A J., & Swope, R.(2008) The Market Guys’ Five Points for Trading Success, McGraw-Hill, ISBN 978-0-470-13897-7 Murphy J (2008) Charting made easy, Wiley, ISBN 1-883272-59-9 McCoy, S and Everard, A & Jones, B (2005), An examination of the technology acceptance model in uruguay and the US: A focus on culture Global Information Technology Management, 8(2), 27-45 Russell, R., (2012) The Dow Theory Retrieved July 25, 2012 from http://ww1.dowtheoryletters.com/ Welles J., Wilder Jr (1978) New concepts in technical trading systems, Trend Research, ISBN-13: 978-0894590276 Wiley, J and Sons, J (1997) Trading with Oscillators: Pinpointing Market Extremes theory and Practice, Wiley, ISBN: 978-0-471-15538-6 136 APPENDICES 137 APPENDIX A Survey Questionnaire Level of Acceptability of the Trend Forecasting Model using Time Series Analysis of Stock Indices Purpose of the survey The purpose of this survey is to assess the TSA Model which the researcher has developed to help investors know how to recognize the trend of the market and to provide objectiveness in the decision-making process Respondents: We ask that this questionnaire be answered by stock brokers and investors Non commercialization and confidentiality Data collected from the survey will be used to test the model relating to a theory developed as a part of a doctoral thesis It does not involve any commercial activities and all information will be treated in strictest confidence How to answer the questions To answer the questions you simply put a check mark in the space provided, circle the most appropriate numbers, or fill the appropriate number in the blank space where you are requested to so TSAM is the Time Series Analysis Model 138 PROFILE OF THE RESPONDENT Name: (Optional) Sex: _ Male _ Female Age: _ 25 year old and below _ 26-50 year old _ 51 years old and above You are _ investor _ stock broker What is the stock broking firm you are working for, or using? _ Saigon Securities Inc (SSI), _ Hacinco Joint Stock Company (HSC) _ Asia Commercial Bank Securities (ACBS) _ Others (please specify) Educational Attainment: _ Doctorate Degree _ Master’s Degree _ Bachelor's degree _ Others (please specify) Amount of money investment: _ $10,000 and below _ $10,001 – $50,000 _ $50,001 – $100,000 _ $100,001 and above Year experience of trading: _ year and below _ 1-5 years _ 6-10 years _ 10 years and above 139 A Reliability Low How accurate does TSAM predict the trend of the Stock Indices? 21 High 32 33 Not very accurate How accurately does TSAM predict the trend of stocks? 21 32 21 How precisely does TSAM predict the reversal signal for trend and sideways trend? 32 Very accurate 33 Not very accurate How exactly does TSAM calculate the strength of the trend? 4 Very accurate 33 Low exactness High exactness 21 32 33 Low Precision High Precision B Efficiency Low How appropriate is the TSAM for buy decisions? High Not very appropriate How appropriate is the Time series analysis model for sell decisions? 2 Very appropriate Not very appropriate To what degree does your profit improve for each trading decision when you use TSAM compared to not using it? Very appropriate Not very appropriate How appropriate is the Time series analysis model for hold decisions? 4 Very appropriate Low Improvement High improvement 140 C Availability Low How easy is it to get input data for the Time series analysis model? High Difficult How easily can you get software to run the Time series analysis model? 2 A lot Very easy Slow How little input data you need to get for a daily update for the Time series analysis model? Very easy Difficult How fast is it to get updated data daily for the Time series analysis model? 4 Very fast Very little D What level of acceptability you experience when you use the TSA model in assisting you to make investment decisions? _ percent Thank you very much Prepared by: Dao The Huy - IT 141 APPENDIX B Regression Variables Entered/Removed Model b Variables Entered Variables Removed Method Availability, Reliability, Enter a Efficiency a All requested variables entered b Dependent Variable: Level of acceptability Model Summary Std Error of the Model R R Square 884 a Adjusted R Square 781 Estimate 775 08471 a Predictors: (Constant), Availability, Reliability, Efficiency b ANOVA Model Sum of Squares Regression Residual Total df Mean Square F 2.968 989 832 116 007 3.800 119 Sig 137.834 000 a a Predictors: (Constant), Availability, Reliability, Efficiency b Dependent Variable: Level of acceptability Coefficients a Standardized Unstandardized Coefficients Model B Std Error (Constant) -.061 041 Reliability 018 003 Efficiency 018 Availability 017 a Dependent Variable: Level of acceptability Model Summary Coefficients Beta t Sig -1.515 132 354 5.762 000 003 363 5.887 000 004 293 4.635 000 142 Model R Adjusted R Std Error of the Square Estimate R Square 952 a 905 905 05521 975 b 950 949 04030 976 c 952 951 03968 a Predictors: (Constant), REL b Predictors: (Constant), REL, AVA c Predictors: (Constant), REL, AVA, EFF d ANOVA Model Sum of Squares Regression 3.440 360 118 003 Total 3.800 119 Regression 3.610 1.805 190 117 002 Total 3.800 119 Regression 3.617 1.206 183 116 002 3.800 119 Residual Mean Square 3.440 Residual df Residual Total a Predictors: (Constant), REL b Predictors: (Constant), REL, AVA c Predictors: (Constant), REL, AVA, EFF d Dependent Variable: Level of acceptability F Sig 1128.794 000 a 1111.336 000 b 765.993 000 c 143 Coefficients a Unstandardized Standardized Coefficients Coefficients Model B -.084 025 -3.407 001 220 007 952 33.598 000 -.199 021 -9.379 000 REL 124 011 535 11.729 AVA 117 011 -.201 021 REL 114 011 AVA 110 EFF 019 (Constant) REL (Constant) (Constant) Std Error Collinearity Statistics Beta t Sig Tolerance VIF 1.000 1.000 000 205 4.877 467 10.219 000 205 4.877 -9.628 000 492 9.994 000 171 5.849 012 438 9.330 000 188 5.309 009 083 2.172 032 281 3.559 a Dependent Variable: Level of acceptability Excluded Variables c Collinearity Statistics Model Beta In t Sig Partial Toleranc Correlation e Minimum VIF Tolerance EFF 186 a 3.828 000 334 306 3.269 306 AVA 467 a 10.219 000 687 205 4.877 205 EFF 083 b 2.172 032 198 281 3.559 171 a Predictors in the Model: (Constant), REL b Predictors in the Model: (Constant), REL, AVA 144 Model Summary Std Error of the Model R R Square 884 a Adjusted R Square 781 Estimate 775 08471 c Dependent Variable: Level of acceptability Collinearity Diagnostics a Variance Proportions Dimensi Model on 1 1.979 1.000 01 01 021 9.652 99 99 2.973 1.000 00 00 00 024 11.238 83 10 02 004 28.136 16 90 98 3.961 1.000 00 00 00 00 027 12.052 80 03 00 07 008 22.053 04 21 11 93 004 32.481 16 76 89 00 Eigenvalue Condition Index a Dependent Variable: Level of acceptability (Constant) REL AVA EFF 145 APPENDIX C Correlations Correlations Level of acceptability Level of acceptability Pearson Correlation EFF AVA AVA 849** 944** 000 000 000 120 120 120 120 952** 833** 892** 000 000 N Pearson Correlation EFF 952** Sig (2-tailed) REL REL Sig (2-tailed) 000 N 120 120 120 120 849** 833** 814** Sig (2-tailed) 000 000 N 120 120 120 120 944** 892** 814** Sig (2-tailed) 000 000 000 N 120 120 120 Pearson Correlation Pearson Correlation ** Correlation is significant at the 0.01 level (2tailed) .000 120 146 APPENDIX D Letter to the Stock Investors and Stock Brokers May, 23, 2012 Dear Sir /Madam This letter refers to my study entitled ―Acceptability of the Trend forecasting model using the Time Series Analysis of Stock indices‖ as partial fulfillment of the requirements for Degree Doctor of Business Administration In this regard, I would like your permission to send some copies of questionnaire to you to gather information relative to my study I am hoping for your consideration regarding this matter Thank you and my best regards Adviser Researcher Dao The Huy (IT) Curriculum Vitae 147 Huy (IT) T Dao, MBA No 15, Group 15, Hoang Van Thu Yard, Thai Nguyen City, 23000, Vietnam 096668666; locphatfunds@gmail.com; daothehuy2305@gmail.com SUMMARY Over years of investing stock, years of trading Foreign Exchange, years of programming A trader, investor, programmer and professor who has the thinking of a programmer and the view of an economist combining the programming and economic sciences The knowledge of building algorithms, programming and economic sciences helps the researcher to build a trading program to synchronize the cycle of economic development, timing for decision making of buy/sell in stock investing or currency trading MBA degree and currently pursuing Doctor of Business Administration WORK EXPERIENCES Professor, The University of Information and Communication Technology of Thai Nguyen University, 2006 to present Currency trader, 2009 to present Stock investor, 2006 to present Import/Export manager, Hai Nguyen JSC, 2006-2008 EDUCATION 148 Doctor of Business Administration; Southern Luzon State University, 2010 – present Master of Business Administration, University of Rizal System, 2008 – 2010 BS in University of Information and Communication Technology, Thai Nguyen University, 2002 – 2007 TEACHING EXPERIENCE Structured programming; Object Oriented programming; Data structure; Cisco Certified Network Associate (CCNA); Marketing Management; Technical analysis in stock and currency trading; Trading tactics and money management PERSONAL INFORMATION Age: 31 Civil Status: Married ... usefulness of the Time Series Analysis Model for decision making for trading actions (buy/sell/hold) The level of acceptability of the trend forecasting model using the Time Series Analysis of stock indices. .. identify the trend of the Vietnam stock market index and to support their trading decisions Objectives of the Study The main purpose of this research was to assess the acceptability of the Time Series. .. method of measuring the value of a section of the stock market It is computed from the prices of selected stocks (sometimes a weighted average) 16 Trend the general direction of a market or of the