This study examines the relationship between foreign ownership and stock price volatility

to find empirical evidence supporting the hypothesis of the positive impact of foreign
indirect investment inflows (FPI). To the stability of the Vietnamese stock market, thus
suggesting policy recommendations on adjusting foreign ownership in Vietnamese
enterprises and supporting the stable development of the Vietnamese stock market in
general.
foreign direct investment (FDI)
foreign portfolio investment (FPI)
International Monetary Fund (IMF) or Organization for Economic Co-operation and
Development (OECD)

Literature review reveals a large body of empirical evidences about the impact of foreign
ownership on firm performance in general and on share price in general (Bilyk, 2009).
Empirical evidences show clear documents a drastic difference in firm performance in
case of domestically-owned and foreign-owned entities (Bilyk, 2009). For example, the
study of Barbosa and Louri (2003) examines the difference in return on assets of
domestically-owned and foreign-owned firms in Portugal and Greece and the difference
is not identical or visible in examined cases. Pfaffermayr and Bellak (2000) assert that
performance gap between domestically-owned and foreign-owned firms in Australia is
not explained by the level of foreign ownership. Moreover, these researchers highlight the
importance of firms characteristics such as firm size and product types to performance
gap.

Zhou (1996) study about linear regression between foreign ownership and the prices of
stocks which are listed in stock exchanges in some markets for long term and the result
shows that the relationship between foreign ownership and stock price is identical in the
dataset. Wong et al. (2005) examine the relationship between stock returns and some
macro-economic factors of which foreign ownership is part of explanatory variables. This
study is conducted within Singapore and U.S from 1982 to 2002 and it is found that
foreign ownership and money supply have statistical significant impact to stock price in
Singapore but it is not true for U.S. market. Harasty and Roulet (2000) identify that there
is significant impact from foreign ownership to stock returns but it is not true for all
market such as Italy. Arango et al. (2002) analyze the impact of foreign ownership to
stock returns and the impact is corrected in inter-bank securities market in Bogota with
data is collected during 1994-2000. Other studies also affirm the relationship between
stock returns and foreign ownership (Campbell, 1987; Shanken, 1990; Uddin and Adam,
2007; Leon, 2008).
In the context of CAPM and APT model above, there are many empirical studies
which are prepared to show how stock returns to be responded to the changes of foreign
ownership. In this scope of work, this study puts following previous researches into
investigation:
Paavola (2006) establishes empirical evidence for the application of APT model to
measure how foreign ownership and some macro-economic factors influencing on stock
return in Russian equity market. This study aims to 20 largest equities companies with
data is collected from 1999 to 2006. Cross sectional regression is used in this study with
the involvements of foreign ownership, money supply, consumer price index, oil price,
foreign exchange rate, and market return. Betas of these variables are 0.024, 0.009, 0.041,
-0.004, 0.016, and 0.026. Moreover, all these variables obtain high explanation level with
R-Square is equal to 0.916 or APT model is best fit in this study.
Tan (2009) conducts a study about the estimation of stock returns in China with
case study of Shenzhen Stock Exchange and there are several explanatory factors that are
put into analysis namely gold price, foreign ownership, exchange rate, industrial index,
money M2, inflation, import volume and export volume. The data is collected from 2005
to 2009 period. The study shows that gold price comes up with Beta of 65.0257 and it is
statistical significant at 5%. Foreign ownership has Beta value of -14.391 with p-value of
0.039 and therefore it is statistical significant at 5%. Foreign exchange rate is another
variable with Beta value is unquoted but it is statistical significant at 1% only due to p-
value of this variable is equal to 0.0645. Industrial index comes up with positive Beta and
p-value of 0.3793 so that this beta is not statistical significant to stock returns. Money M2
is another variable with Beta is positive and p-value is 0.293 so that this variable has Beta
not statistical significant at 5%. Inflation has Beta of -71.911 and p-value of 0.5995 so
that this variable has Beta not statistical significant at 5%. Import and export are two last
variables with Betas values are stood at -18.446 and 8.60052. P-values of import and
export variables are 0.2661 and 0.596 so these variables have Betas not statistical
significant at 5%.
Iqbal et al. (2012) test the application of APT model on Karachi Stock Exchange
in Pakistan. Iqbal et al. (2012) obtain correlation coefficients of -0.092332571,
0.114693157, 0.007525925, and -0.130700047. Thus, foreign ownership has highest
impact to stock return with highest correlation coefficient value. Moreover, Iqbal et al.
(2012) conduct T-Test to show the difference between predicted stock returns and actual
returns. Thus we concluded that the outcome of Arbitrage Pricing Theory is much similar
to actual one and APT is efficient enough to predict the future stock returns, hence its
validity is supported.
Muthia and Isnurhadi (2012) conduct a study about APT model testing on shares
in banking sector. This study is deployed in Indonesia Stock Exchange with the data is
collected from 2005 to 2010. Explanatory factors are industrial production index, foreign
ownership, money supply, and the change in gold prices. APT model, furthermore, is
applied for 8 stocks with R-Square are 0.238, 0.110, 0.128, 0.090, 0.058, 0.074, 0.017,
and 0.025 so that APT model can explain for maximum of 23.8% of changes in stock
returns. On the other hand, chosen explanatory factors to stock returns have low
explanation to changes of stock prices accordingly. In addition, Muthia and Isnurhadi
(2012) also investigate overall effect of these variables to stock returns and Betas of
industrial production index, foreign ownership, money supply, and the change in gold
prices are 0.053, -4.065, 0.350, and 0.022. P-values of these variables are 0.874, 0.055,
0.904, and 0.202 so that only foreign ownership has Beta to be statistical significant at
10%.
Hammami et al. (2015) create a study to measure the relations between foreign
ownership and return in Tunisians stock market. Unconditional and conditional relations
are put into discussion with the appearance of market dummy (up or down). Four
measurement models are established and two of them are set to measure the impacts from
Kurtosis and Skewness which may not be relevant to much of readers. Only one model
involves foreign ownership, oil price, and foreign exchange rate. With market up/down as
dummy variables, Betas of these variables are 0.635, 1.569, -0.116, -0.011, 0.144, and
0.013. Only foreign ownership has Betas to be statistical significant at 5% with p-values
of 0.007 and 0.000. R-Square is equal to 0.576 or 57.6% of changes in stock returns can
be explained by chosen variables.
Kamande (2015) conducts a study to evaluate the impacts of foreign ownership
and some macro-economic factors to stock returns in Nairobi Securities Exchange. In this
study, explanatory factor includes oil price, foreign ownership, and inflation rate. Beta
coefficients of these variables are estimated at -0.03961, -0.000456, -0.469493, and
-0.048357. P-values of these variables are 0.4019, 0.6210, 0.0087, and 0.3900 so that
only foreign ownership has Beta to be statistical significant at 5% while none of
remaining variables statistical significant at 5%.
Mugami and Okech (2016) provide a study with measurement of the effect of
foreign ownership and macro-economic factors to stock returns in banking industry in
Kenya. The data is collected from 2000 to 2015 with linear regression technique to be
applied. Explanatory factors which are used in this study include inflation, foreign
ownership, foreign exchange rate, and gross domestic product. OLS regression result
shows that Beta coefficients for these variables are 0.075851, -0.158931, -1.746724, and
-0.125874. Only gross domestic product has Beta not statistical significant at 5% (p-value
is equal to 0.3547) while other variables have p-value less than 0.05. R-Square is equal to
0.242044 or these variables can explain for 24.20% of changes in stock returns in
banking industry in Kenya.