Overreaction and price limits: Evidence from Tehran Stock Exchange (TSE)

Based on overreaction hypothesis, which is one of the market anomalies, investors tend to overreact to good (or bad) news, pushing stock prices above (or below) their equilibrium price. The main goal of this paper is to examine the phenomenon of overreaction by using price limits in Tehran Stock Exchange (TSE) based on a sample of listed stocks from 1382 to 1387. This hypothesis is examined by the means of an event study methodology in which the event is defined as an increase or decrease in the stock price that activates the price limit.findings indicate the occurrence of short term overreactions in TSE during the period under investigation. Furthermore, the price reversals cannot be attributed to the size effect.