A SIMPLE STRATEGY TO INVEST IN THE VIETNAMESE STOCKS FOR A MODEST PROFIT

Abstract

Any small investor faces the eternal dilemma - Whether to park his/her hard earned money in the bank fixed deposits which may earn low interest but has no risk, or invest in the stock market which may provide a better return but comes with some risk of losing that money. Further, the small investors may lack resources to afford expensive and powerful analytical tools to get an edge in the market. So we have asked a simple question: With the publicly available market information, can a small investor devise a simple strategy to beat the bank fixed deposit rates?

This work presents a simple strategy where we observe an individual stock’s volatility through the "spread" over each unit of time (defined as the interval of (min, max) per unit of time). This spread is a random variable having its own probability distribution, but we make no parametric assumption for this probability distribution.

A stock’s inter percentile range length (IPRL) is then suitably and nonparametrically calculated based on a training sample of a number of n units of time preceding an intended transaction at a given unit time interval. For our study we have used one hour as our unit of time, and it is assumed that a stock’s behavior in one time unit is independent of the others. Also, only one transaction is to be done per unit of time for an individual stock.

We have studied the overall performance of a portfolio of 26 Vietnamese stocks chosen from the list of Top VN 100 Stocks, and we have used the hourly data over N = 1245 hours spanning over all the 249 business days for the year 2023. For an individual stock, a bandwidth is created using the IPRL; if the price falls below the lower margin then stocks are bought, and they are sold if the price crosses the upper threshold. Results of our simulation study show our portfolio profit margin of 9.6% in one year, with an estimated standard error (SE) of 1.84%. This is better than the one-year fixed deposit interest rates in the reputed Vietnamese banks which stood approximately at 5% APY (annual percentage yield) by the end of 2023.