The risk-return relationship in Vietnam’s stock market: A weak connection

Vietnam’s stock market is one of the fastest-growing in Asia, marked by high volatility and a strong presence of retail investors. This study examines the relationship between volatility, commonly viewed as a measure of risk, and expected returns, challenging the traditional belief that higher risk leads to higher returns. The findings show a statistically significant but economically weak connection, suggesting that volatility has a limited influence on returns. The results highlight the unique characteristics of Vietnam’s market, where speculative trading, retail investor behavior, and structural constraints play a larger role than standard risk-return patterns. Instead of aligning with the capital asset pricing model (CAPM), returns are mainly driven by short-term momentum and market sentiment. This study contributes to asset pricing literature by stressing the need for market-specific models in emerging economies and offers insights for investors and policymakers seeking to strengthen market performance and stability.