The low information processing power of stockholders and its role in mispricing of firms’ shares

Subject Areas : Financial Knowledge of Securities Analysis

Abbas  Aflatooni ¹ (استادیار حسابداری، دانشگاه بوعلی سینا، همدان)

Received: 2014-11-23 Accepted : 2015-04-04 Published : 2016-08-05

Keywords: Information processing, accruals, net operating assets, rational pricing,

Abstract :

The published information on an entity is generally voluminous, and stockholders are not capable to analyze all available information. In this research that is done on a sample of 193 firms listed in Tehran Stock Exchange from 2002 to 2013, using the rational pricing approach; I investigates the effect of low processing power of stockholders in analyzing the information about accruals and net operating assets, on their estimation about persistence of firms' future earnings.The research results show that, accruals and net operating assets are negatively associated to firms' future stock return; and investing in shares of firms with voluminous accruals and net operating assets, lead to the lower future stock returns for investors. Nonetheless, because of stockholders' inability to processing the information related to accruals and net operating assets, they overestimate the future persistence of accruals and net operating assets (and finally, accounting earnings) and cause to mispricing and irrational pricing of shares in stock market

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