Jump Identification as a Proxy of Information Shocks, In Tehran Stock Exchange.

Subject Areas : Financial and Economic Modelling

Hadis Taghaddosi ¹ , Farimah Mokhatab Rafiei ² , Ali Husseinzadeh Kashan ³

1 - Department of Financial Engineering, Faculty of Industrial and System Engineering, Tarbiat Modares University, Tehran, Iran.
2 - Department of Financial Engineering, Faculty of Industrial Engineering ; Systems, Tarbiat Modares University, Tehran, Iran.
3 - Faculty of Industrial and Systems Engineering, Tarbiat Modares University, Tehran, Iran

Received: 2022-10-31 Accepted : 2023-02-23 Published : 2024-02-26

Keywords: Information shocks, Jump detection, Short-Term Overreaction, Contrarian investment strategy,

Abstract :

Using jumps in stock prices as a proxy for information shocks to examine investors' reactions to significant events is the most effective method for identifying information shocks. Compared to other studies, this method has advantages listed at the end of the literature review. We provide evidence consistent with short-term overreaction on the Tehran Stock Exchange. Thus, through the contrarian investment strategy, i.e., buying stocks with negative lagged jump returns and selling those with positive lagged jump returns, earn significantly positive returns over the next one- to three-month horizons. This research analyzed the adjusted daily closing prices of the top thirty stocks on the Tehran Stock Exchange in terms of market value and turnover during 2013-2020.

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