The Feasibility of Tehran Stock Price Index Forecasting by Using CAPM Model

Exchange market operations, as prime institution for capital market, reflect the mutual interaction of buyers, brokers, administrators of stock Exchange and government behavior on stock prices. So, the resultant pattern of stock prices is considered as an important issue. In this research, we study the feasibility of stock price forecasting, the degree of efficiency, and expectations formation method. We concentrate on non-metal industries, financial intermediaries, and car industry in Tehran Stock Exchange for the period of 1999-2003. We use CAPM model to find out intrinsic value of stocks for above mentioned industry and then try to understand the kind of relationship between market price and intrinsic values under the conditions of meaningful systematic risks. We also examine the relationship between present and past rate of return to market capital efficiency. Finally, we examine expectations formation by using ECM model.