Assessing the Relationship Between Internal and External Information Shocks and Investor Behavioral Biases

Classical economics and the study of financial markets from a normative point of view have their foundations laid in the rationality of economic agents. The main hypothesis revolves around decision making under rationality. on the other hand,investors do not act as if they are rational,the contrary,exhibit many biases that lead to poor investment decisions in specific contexts.These cognitive errors are due to investors’ inability to certainly know market movements for the next periods, which inclines them to make biased decisions.This paper wishes to analyze the behavior of investors from Tehran Stock Exchange to see if they are prone to behavioral bias under the conditions of information shock. To achieve the research goal, data of 106 sample companies were collected in the period 2013-2020 and analyzed by descriptive-correlation analysis using multiple regression test. The results showed that there was only a significant relationship between internal information shock (fundamental changes in institutional ownership) and behavioral bias of investors' Loss aversion and Self-control Bias and no significant relationship was found with other internal and external shocks. Also, there is no significant relationship between internal and external shocks and behavioral bias of Information Salience.