PurposeAlthough the solid empirical proof of momentum is documented in various stock markets, there are many debates among academics with respect to the source of momentum profit. The first aim of this paper is intensively re-examine the momentum profit in Vietnam, an important emerging market. Secondly, the authors study the return predictability of a measure of investors’ overreaction, then examine whether the momentum effect in Vietnam is explained by overreaction.Design/methodology/approachUsing the weekly data of more than 300 non-financial Vietnamese stocks during 2009–2019, the authors build a measure of investors’ overreaction, which is based on trading volume and the sign of stock returns. Consequently, to investigate whether momentum exits after controlling for overreaction, the authors carefully compare trading strategies based on overreaction with price momentum strategies using adjusted returns and double sorts on past returns and levels of overreaction.FindingsThe article makes three main findings. Firstly, the authors discover the empirical evidence of momentum in the Vietnamese equity market. Secondly, the measure of overreaction could be a predictor of Vietnamese stock returns. Stocks that have experienced a stronger upward overreaction provide a higher average return. Finally, returns on trading strategies based on overreaction are robust after adjusting for momentum, while returns on momentum portfolios become insignificant after adjusting for overreaction. By double-sorting, the authors document that holding past returns constant, the average returns of portfolios rise monotonically with their measure of overreaction. Hence, the momentum profit in Vietnam arises from investors’ overreaction.Originality/valueThe paper extends previous research on the behavioral explanation of momentum in emerging stock markets, which has not been fully exploited in the literature.

The literature is inconclusive on the source of the size effect. Our paper contributes to extant studies by investigating the relationship between the size premium and default risk in Vietnam, an important frontier emerging market. The debt‐to‐equity ratio and distance‐to‐default of Merton (1974, The Journal of Finance, 29, 449) are used as distress‐risk proxies. Based on more than 300 listed stocks over 2009–2019, we discover that the small portfolio delivers the highest average return. The excess return on the small portfolio is concentrated in firms with high distress risk. Furthermore, neutral size factors are built to dissect returns on the Fama‐French size factor from the default‐risk premium. Empirical results prove that the explanatory power of the size factor is negatively affected when the default‐risk neutrality is applied. Given this backdrop, the size premium in Vietnam is likely to be compensation for distress risk, consistent with a risk‐based point of view.