African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4094

Full Length Research Paper

An evaluation of the investors overreaction to the past financial function criteria: Iranian evidence

Mehdi Moradi1, Mahdi Salehi2* and Afshin Hasanzadehnamaghi3
1Accounting Department, Ferdowsi University of Mashhad, Iran. 2Accounting Department, Islamic Azad University, Takestan Branch, Iran. 3Islamic Azad University, Mashhad Branch, Iran.
Email: [email protected]

  •  Accepted: 06 May 2011
  •  Published: 04 August 2011

Abstract

One of the assumptions of the efficient market hypothesis is that logical reaction of investors to known and available data cause the cost of invested wealth to approach to its main cost. However the experience shows that the behavior of investors in capital market has not always been correct and market cooperators shows overreaction to new data. The aim of this study is to determine whether the investors have assigned a higher level for the stock of companies that have acquired rather high criteria in the past from the real values, and whether the prices of these stocks will return to original costs and experience the return of previous returns. Similarly, the companies that have had rather weak return in the past have been valued in lower price by experts and will acquire more return compared to their partners in next periods. Among financial functional criteria, average of sale growth rate, average growth of operational profit, average annual return and average cumulative abnormal return (ACAR) have been selected and four hypotheses have been tested in Tehran Stock Exchange during 2001 to 2009. The evidences of the present research show that the investors in Tehran Stock Exchange have shown overreaction to financial function criteria.

 

Key words: Overreaction, output return winner portfolios, lose portfolio.