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Experimental Evidences for Prospect Theory in Vietnam


Affiliations
1 Associate Professor, Faculty of Banking and Finance, Foreign Trade University, 91 Chua Lang St., Ha Noi, Viet Nam
2 Master Student, Lisbon School of Economics and Management, Lisbon, Portugal
3 MSc, University of Nottingham, Nottingham, United Kingdom
4 PhD., Faculty of Banking and Finance, Foreign Trade University, 91 Chua Lang St., Ha Noi, Viet Nam

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In the context of growing literature about behavioral finance and experimental research, there is an urgent need to expand this contemporary branch in emerging markets in general and Vietnam in particular. Therefore, this paper aimed at finding evidence of prospect theory in Vietnam using a battery of experimental approach. The objective of experiment design is to understand the economic market and represent almost all risk suffering levels. The research outcomes strengthened arguments of prospect theory in terms of both slope and reference point. This research found evidence for the hypothesis that the utility curve reference point lies in the positive domain. This suggested that in the case of low profitability, investors could still prefer risk over certainty, but they shall be more risk averse as returns are increased. Besides, the relationship between loss aversion and other behavioral biases was also examined, and evidence of strong relation between loss aversion and anchoring and overreaction was found, while there existed no clear correlation between loss aversion and overconfidence. The findings of this paper shed light on current research about behavioral finance, especially about prospect theory in Vietnam, suggesting a pilot approach to find evidence of various behavioral biases that might affect stock market investors’ decisions.

Keywords

Behavioral Finance, Experimental Research, Loss Aversion, Prospect Theory, Vietnam.

JEL Classification Codes : G10, G11, G41.

Paper Submission Date : February 5, 2020 ; Paper sent back for Revision : September 18, 2020 ; Paper Acceptance Date : December 20, 2020 ; Paper Published Online : July 5, 2021.

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  • Experimental Evidences for Prospect Theory in Vietnam

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Authors

Phan Tran Trung Dzung
Associate Professor, Faculty of Banking and Finance, Foreign Trade University, 91 Chua Lang St., Ha Noi, Viet Nam
Nguyen Xuan Tung
Master Student, Lisbon School of Economics and Management, Lisbon, Portugal
Le Hoang Thu Van
MSc, University of Nottingham, Nottingham, United Kingdom
Nguyen Thi Ha Thanh
PhD., Faculty of Banking and Finance, Foreign Trade University, 91 Chua Lang St., Ha Noi, Viet Nam

Abstract


In the context of growing literature about behavioral finance and experimental research, there is an urgent need to expand this contemporary branch in emerging markets in general and Vietnam in particular. Therefore, this paper aimed at finding evidence of prospect theory in Vietnam using a battery of experimental approach. The objective of experiment design is to understand the economic market and represent almost all risk suffering levels. The research outcomes strengthened arguments of prospect theory in terms of both slope and reference point. This research found evidence for the hypothesis that the utility curve reference point lies in the positive domain. This suggested that in the case of low profitability, investors could still prefer risk over certainty, but they shall be more risk averse as returns are increased. Besides, the relationship between loss aversion and other behavioral biases was also examined, and evidence of strong relation between loss aversion and anchoring and overreaction was found, while there existed no clear correlation between loss aversion and overconfidence. The findings of this paper shed light on current research about behavioral finance, especially about prospect theory in Vietnam, suggesting a pilot approach to find evidence of various behavioral biases that might affect stock market investors’ decisions.

Keywords


Behavioral Finance, Experimental Research, Loss Aversion, Prospect Theory, Vietnam.

JEL Classification Codes : G10, G11, G41.

Paper Submission Date : February 5, 2020 ; Paper sent back for Revision : September 18, 2020 ; Paper Acceptance Date : December 20, 2020 ; Paper Published Online : July 5, 2021.


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DOI: https://doi.org/10.17010/ijf%2F2021%2Fv15i5-7%2F164491