Predicting Emotional Tendency of Investors Using financial ratios based on principal component analysis method
Subject Areas : Financial Economics
Reza Taghavi
1
(
Ph.D. Student of Accounting, Department of Accounting, Babol branch, Islamic Azad University, Babol, Iran
)
iman dadashi
2
(
Assistant professor of accounting university of Qom
)
Mohammad Javad Zare Bahnamiri
3
(
Assistant professor of Accounting, University of Qom
)
Hamid Reza Gholamnia Roshan
4
(
Department of Accounting, Babol branch, Islamic Azad University, Babol , Iran
)
Keywords: principal component analysis, financial ratio, Keywords: Investor's emotional orientation, Neighborhood Component Analysis, Regre JEL Classification: N25, M41,
Abstract :
AbstractOne of the proven topics in psychology is the influence of people's emotion's on the decision-making process and their judgment about future events. In such a way that when people have positive emotions, they make optimistic choices and when they have negative emotions, they make pessimistic choices. Therefore, the emotional tendencies of investors indicate the margin of optimism and pessimism of shareholders towards a share. The purpose of this study is to use financial ratios to predict the emotional tendencies of investor's. To answer the research questions, data related to 97 financial ratios belonging to companies listed on the Tehran Stock Exchange during the period 2006 and 2018 have been used. In order to derive effective financial ratios, the neighborhood component analysis algorithm method was used, which ultimately led to the selection of 7 ratios. To measure the emotional tendencies of investor's, four indicators of relative strength, psychological line, trading volume and stock turnover adjustment rate have been applied. Finally, we have combined these indicators with the help of PCA method. The results showed that the ratios of percentage changes in sales changes, net profit to assets and the ratio of inventory changes to sales changes have a positive and significant effect on investor's feelings.
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