Investigating the Disproportionate Reaction of Investors in the Iran Stock Market

Document Type : Research Paper

Authors

1 Professor of Applied Economics, University of Tehran

2 PhD Student in Financial Economics, University of Tehran

Abstract

The purpose of this paper is to evaluate the two behavioral biases, overreaction, and underreaction, of investors in the Tehran Stock Exchange (TSE) and to express their relationship with another bias called herd behavior. Meaning of behavioral biases in the capital market is the situations in which a person with rational or irrational reasons ignores his personal information and his influence by News, economic and political evolutions, etc., which will not lead to an on-time or sufficient reaction or both to the market evolutions and will cause a gap in comparison to the efficient market. In this study, Barberise et al.'s model was used to evaluate overreaction and underreaction, and the Laconishok model to examine the behavioral biases of investors. For this purpose, the daily data of stock prices and stock trading volume of companies listed on the Tehran Stock Exchange between 2013 to 2019 have been used. The results show that the overreaction, underreaction, and herding behavior of TSE investors existed during the studied period.

Keywords

Main Subjects

References

 
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Financial Management Strategy
Volume 9, Issue 4 - Serial Number 35
December 2021
Pages 87-106

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History

  • Receive Date: 09 October 2020
  • Revise Date: 16 August 2021
  • Accept Date: 26 December 2021

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