Ahmad Badri; Neda Goodarzi
Volume 11, Issue 43 , October 2014, , Pages 57-88
Abstract
Abstract
Individuals are thought to make biased judgments under uncertainty, because limited time and cognitive resources lead them to apply heuristics like representativeness. Representativeness is the tendency of individuals to classify things into discrete groups based on similar characteristics.
In ...
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Abstract
Individuals are thought to make biased judgments under uncertainty, because limited time and cognitive resources lead them to apply heuristics like representativeness. Representativeness is the tendency of individuals to classify things into discrete groups based on similar characteristics.
In order to measure the representativeness bias, we examine the relation between past trends and sequences in financial performance and future returns in Tehran stock exchange (TSE) between1380-1390. We also investigate the impact of consistent sequence of financial performance in future return. Finally, the study examines the effect of subsequent performance that confirms or contradicts past pattern of growth on the predictability of future returns. The study uses annual data consisted of 800 firms-year and 3200 firms-quarter. The main research methodology is portfolio study. This study calculates financial growth rates over two periods: one year (four rolling quarters) and five years (using annual data). Three accounting measures of performance are calculated: sales, net income, and operating income.
The results indicate that the abnormal returns in one-year trend are significantly positive. But abnormal returns in the year after five years of high or low growth are statistically and economically insignificant. In addition, we find little evidence about the consistency or pattern of firm performance effects on expectations of future returns. Finally, the past trend and pattern of growth do not lead to predictable returns following subsequent performance that confirms or contradicts this past trend.
Mohamad Arab mazar yazdi; Ahmad Badri; AFSHIN Azizian
Volume 10, Issue 39 , October 2013, , Pages 1-27
Abstract
Herding behavior is among the most noticed biases in behavioral finance. This bias implies that investors unknowingly neglect personal information and analyses; instead they tend to follow other investors or the whole market. Using Tehran Exchange stocks transactions data, this study empirically ...
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Herding behavior is among the most noticed biases in behavioral finance. This bias implies that investors unknowingly neglect personal information and analyses; instead they tend to follow other investors or the whole market. Using Tehran Exchange stocks transactions data, this study empirically examines herding behavior in this market. Two models based on cross-sectional deviation of stock returns and another model based on beta in state-space structure are utilized in our research. The sample covers 21,112 weekly returns and transaction volumes observations from April 2005 to April 2011. Our findings indicate that participants often lack independent investment decisions; i.e. they prefer following other investors’ decisions to taking an independent approach. This confirms that herding behavior exists in Tehran Stock Exchange. Moreover, evaluating comparative power of our three models suggests that the model based on beta is more powerful in explaining herding behavior than the other model.
