The bidirectional relationship between investor sentiment and Tobin’s Q: An ARDL analysis of the Vietnamese stock market

Type of the article: Research ArticleAbstractInvestor sentiment plays a crucial role in shaping firm valuation dynamics within emerging markets, where its bidirectional relationship with Tobin’s Q remains a largely uncharted territory. This is especially relevant in contexts like Vietnam, where the dominance of retail investors and the prevalence of herd behavior significantly heighten market volatility, creating unique challenges for understanding market mechanisms. This study delves into the mutual interplay between investor sentiment and Tobin’s Q among companies listed on the Vietnamese stock market, aiming to uncover the intricate connections that influence valuation processes. The study employs the Autoregressive Distributed Lag (ARDL) model, a robust econometric approach, to analyze an extensive dataset comprising 410 firms from the Ho Chi Minh City Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) over the period spanning 2015 to 2023. The findings unveil a multifaceted dynamic: in the short term, investor sentiment negatively affects Tobin’s Q, suggesting that excessive market optimism often leads to overvaluation, followed by necessary corrections. In contrast, over the long term, sentiment positively affects Tobin’s Q, indicating that sustained positive perceptions can substantially enhance firm valuation. Furthermore, Tobin’s Q demonstrates a positive short-term influence on sentiment, reflecting how improved valuations bolster investor confidence, although this influence fades in the long run. Granger causality tests reinforce the presence of a reciprocal short-term relationship between these variables. These insights underscore the critical influence of sentiment on firm valuation within Vietnam’s emerging market, providing valuable guidance for investors and policymakers to better manage and mitigate the risks associated with sentiment-driven market fluctuations.AcknowledgmentsWe, Trang Tran Thi Thu, Huyen Le Thanh, and Dien Do Thi, would like to extend our deepest gratitude to our families for their unwavering support and encouragement throughout this research. Their patience and understanding have been a constant source of strength for us.We are also immensely grateful to our colleagues for their invaluable assistance and collaboration. Without the support of our families and colleagues, this research would not have been possible. Thank you all for your belief in us and your continuous encouragement.