Testing representative bias using fundamental accounting measures: Evidence from TSE

Badri, Ahmad; Goodarzi, Neda

Testing representative bias using fundamental accounting measures: Evidence from TSE

Document Type : Research Paper

Authors

Ahmad Badri

Neda Goodarzi

Associate Prof., ShahidBehesheti University

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 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.

Keywords

Behavioral Finance

representative bias

fundamental accounting measures

consistency of past performance

disconfirming information

confirming information

20.1001.1.28210166.1392.11.43.3.3

ﺭﺣﯿﻤﯽ،ﻋﻠـﯽ (1374). "ﺑﺮﺭﺳـﯽﺭﺍﺑﻄـﻪﺑـﯿﻦﺑـﺎﺯﺩﻩﺳـﻬﺎﻡوﺿـﺮﯾﺐP/Eشرکت‌هایپذیرفته‌شدهﺩﺭﺑﻮﺭﺱﺍوﺭﺍﻕﺑﻬﺎﺩﺍﺭﺗﻬﺮﺍﻥ"،پایان‌نامهﮐﺎﺭﺷﻨﺎﺳـﯽﺍﺭﺷـﺪﺣـﺴﺎﺑﺪﺍﺭی،ﺩﺍﻧﺸﮕﺎﻩﺷﻬﯿﺪﺑﻬﺸﺘﯽ.
ثقفی،علیومحمدجوادسلیمی(1384)، متغیرهایبنیادیحسابداریوبازدهسهام، مجلهعلوماجتماعیوانسانیدانشگاهشیراز،دورهبیستودوم،شمارهدوم
پور حیدری امید، عطارد حسن(1387)، بررسی تحلیل‌های بنیادی در بورس اوراق بهادار تهران، پژوهشنامه اقتصادی،دوره 8، شماره 2 (ویژه‌نامه بازار سرمایه)):15-39
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