Determine the Effects of Fundamental Variables and Mass Behaviors in Changes of Stock Price (Evidence from Iran Stock Exchange)

Abstract

Previous studies have claimed that new information about market fundamentals provides only a partial explanation of observed price fluctuations. It has been proposed that short-term fluctuations are caused by shifts in market psychology or events that have no direct impact on business prospects or economic conditions. In accordance with the idea that short-term variability in asset prices could be explained by causes other than fundamentals. We test the probability of the existence of bubbles and herding behaviors, using panel data from 2005 - 2010 in Tehran exchange securities. The present research deals with two major and three minor hypotheses. Price variations are a dependent variable in all these hypotheses. Variations of incomes, variations of debts to the shareholders and variations of monthly price fluctuations form independent variables of the minor hypotheses respectively.

Our results show that there is not significant relation between stock price changes and fundamental hangs. Thus existence of bubble is approved. Also, other findings about herding behaviors indicate that there is significant relation between stock price changes and changes in herding behavior proxies.