Misevaluation and Behavioral Biases in the Tehran stock exchange

Subject Areas : Financial engineering

Jamal Tavosi ¹ , Jamal Tavosi ² , Aminreza Kamalian ³

1 - Public Administration Department, Economics and Management Faculty, University of Sistan and Baluchestan, Zahedan, Iran
2 - Public Administration, Economics and Management Faculty, University of Sistan and Baluchestan, Zahedan, Iran
3 - Department of Public Administration, Faculty of management and economic, University of sistan and Bluchestan, Zahedan, Iran

Received: 2018-02-13 Accepted : 2018-05-21 Published : 2018-09-23

Keywords: Event Study, Stock Valuation, Particular Swarm Optimization, Behavioral Biases,

Abstract :

According to efficiency market hypothesis security prices respond quickly to new information and accurately reflect their fundamental values. More recent work indicates that market frictions and the psychological limitations of traders can cause asset prices to deviate from their fundamental values for a considerable length of time. To investigate theoretical concepts, the composite error model and event study approach and for specification model Particular Swarm Optimization were used in this study. The results from Coelli one-sided likelihood ratio test in the event period shows that there are the biases in IKCO’s returns. This study develops an empirical method that tests for and estimates the degree of valuation bias. Being better able to detect valuation bias reveals profit opportunities and may improve the efficiency of financial markets if it sufficiently changes trader behavior.