Return Reversal in Portfolios Optimized under Exchange Rate Risk: Evidence from Vietnam’s HNX Market

This study examines the existence of short-term reversal effects in the Vietnamese equity market, with a focus on the Hanoi Stock Exchange (HNX) during the period January 2010 to April 2025. Using monthly stock returns for 46,882 firm–month observations, the analysis constructs portfolios based on an optimization framework that balances expected return, variance, and exposure to exchange rate risk. The empirical strategy involves both descriptive portfolio analysis and regression tests under standard asset pricing models, including the Capital Asset Pricing Model (CAPM) and the Carhart four-factor model (FF4), with adjustments for foreign exchange sensitivity. The results provide robust evidence of a short-term reversal anomaly. Portfolios formed on lagged information exhibit strongly negative abnormal returns at the one-month horizon, which weaken at two months and disappear entirely by the third month. Importantly, these effects cannot be explained by conventional risk factors, indicating the presence of inefficiencies inconsistent with the Efficient Market Hypothesis (EMH). Robustness checks further confirm that the anomaly persists across alternative model specifications and estimation windows. In particular, sensitivity tests with varying exchange rate risk parameters reveal a distinctive inverted U-shape in t-statistics, implying that reversal is strongest around central values and fades at extremes.