Investigating the disproportionate reaction of investors in the Iran stock market

The purpose of this paper is to evaluate the two behavioral biases, overreaction and underreaction, of investors in the Iran stock market and to express their relationship with another bias called herd behavior.Meaning of behavioral biases in the capital market is situations in which a person with rational or irrational reasons, ignores his personal information and his influence on news, economical and political evolutions, etc.,won’t lead to an on time or sufficient or both reaction to the market evolutions and will cause a gap in the efficient market. In this study, Barberise et al.'s model was used to evaluate overreaction and underreaction, and the Laconishok model to examine the behavioral biases of investors. For this purpose, the daily data of stock prices and stock trading volume of companies listed on the Tehran Stock Exchange during the years 2013 to 2019 have been executed. The results of the this study show that the over and under reaction of investors and also herding in the Tehran Stock Exchange has existed during the review period.