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Evaluating Overconfidence in Tehran Trade Market

Saberi, Ghazal | 2014

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 45908 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Zamani, Shiva
  7. Abstract:
  8. Behavioral finance researchers have introduced behavioral biases, derived from psychology, to financial models in order to make them more realistic and to increase their explanatory power.One of the best known of these biases, considered in behavioral finance literature, is overconfidence, which means investors overestimate their own knowledge and ability to evaluate securities. Several theoretical models have studied the effects of this bias on financial markets and many empirical models have examined their assumptions, looking for whether investors are overconfident or not. Explained by these models, price overreaction to private information arrival and underreaction to public signal, is an important result. In order to find an evidence for Iranian investors’ overconfidence, this study evaluates this hypothesis. For this purpose we employ a two variable VAR model in which average and weighted average of sto return and trading volume are variables. Using this model and other theoretical models in literature, we are able to distinguish public and private information signals and employing the impulse-response functions we can examine the effects of each of these structural shos on the price level of 78 most traded firms in Tehran Trade Market during the period 1999-2008. Results indicate that overreaction to private information and underreaction to public one does exist, even though, overreaction is not significant at a 95% level
  9. Keywords:
  10. Overconfidence ; Impulse-Response Function ; Price Overreaction ; Public Information Signals ; Private Information Signals ; Price Underreaction

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