Investigating the effect of investors sentiments on price formation behavior in the Tehran stock market

This study measured the investor sentiment to understand its role in the behavior of the Tehran Stock Exchange and its relationship with the stock price during a monthly period from March 2016 to March 2022. The returns on some TSE-listed indices were compared to analyze the relationship between the investor sentiment and the stock price. This study improves our understanding of the price formation process at purchases or sales caused by sentiments acting as the major determinant of the stock price change. Statistical evidence indicates the impact of sentiments on the price formation process in specific TSE-listed indices. The autoregressive integrated moving average (ARIMA) was employed to estimate parameters and the behavior induced by the investor sentiment. According to the results, they respond asymmetrically to sentiment changes and trade more aggressively when sentiments reduce. There are also significant relationships between some of the market variables and the investor sentiment. Finally, comparing the sentiment index with each price index of the market will lead to the conclusion that there is a positive significant relationship between the sentiment tendency and the price formation process at the Tehran Stock Exchange.