The Development and Assessment of Stock Pricing Model Based on the Anchoring and Adjustment Theory

Subject Areas : Financial engineering

Mohammad Noroozi ¹ , daruosh foroughi ² , farzad karimi ³

1 - Department of Accounting, Shahrekord Branch, Islamic Azad University, Shahrekord, Iran
2 - Department of Accounting, Faculty of Administrative Sciences and Economics, University of Isfahan , Isfahan, Iran
3 - Department of Management, Mobarakeh Branch, Islamic Azad University, Mobarakeh. Iran

Received: 2021-10-22 Accepted : 2021-11-14 Published : 2022-06-22

Keywords: Behavioral Finance, Stock Pricing Model, Anchoring and Adjustment, Investors Sentiment,

Abstract :

The Financial market analysis is an important issue that influences investors' decisions. This paper developed the stock pricing model by comparing the predicted stock price based on the anchoring and adjustment theory and the real stock price through collecting and analyzing the initial information and data of 122 companies listed on the Tehran Stock Exchange during the period 2011 to 2019. The results of this study show the effectiveness of the anchoring and adjustment theory based on the separation of stock return components and measuring the irrationality coefficient and emotional reactions of investors' decisions in stock prices. Accordingly, the limitations of investors 'ability to process information seem to affect the level of use of reasoning and rationality in decision-making and the effect of bounded rationality through the irrationality and limited attention on stock pricing. Therefore, it is expected that knowledge about the process of bounded rationality based on the rational bounded of investors and the behavioral biases resulting from the irrational part of their thinking, will provide a good explanation for the process of changes in financial markets. This can provide both profit opportunities and costs in investment management so that it can be used in modeling, analysis and investmentstrategies.