A Model of Behavioral and Fundamental Factors affecting the Fluctuations of the Tehran Stock Exchange

Enayatollahi, Sina; Askarzadeh, Gholamreza; Hamid, Khajeh; Abtahi, Yahya

A Model of Behavioral and Fundamental Factors affecting the Fluctuations of the Tehran Stock Exchange

Document Type : Original Article

Authors

¹ Ph.D. Candidate, Department of Financial Management, Yazd Branch, Islamic Azad University, Yazd, Iran.

² Assistant Professor, Department of Financial Management, Yazd Branch, Islamic Azad University, Yazd, Iran.

Abstract

Understanding capital market behavior is crucial for making the better investment decisions, as well as making the better decision from a policymaking perspective. Therefore, the aim of this article is to investigate the impact of fundamental and behavioral factors on the Tehran Stock Exchange index. For this purpose, the fluctuations of the Tehran Exchange Dividend Price Index (TEDPIX) were modeled using Generalized Auto-Regressive Conditional Heteroscedasticity. Thereafter, a regression model included fundamental and behavioral variables such as: gross domestic product, interest rate; inflation rate; exchange rate; Liquidity; return on assets (ROA) of the market; variance of return on equity (as macroeconomic and corporate fundamental variables) and the ratio of the total number of shares traded over the period over the number of shares outstanding for the period (considered here as a proxy for herd behavior) to examine the return fluctuations of TEDPIX. The methodology employed for estimating the regression model was autoregressive distributed lags. Furthermore, the data for this purpose was based on the quarterly data between 2014: q2 to 2023: q3.
The results obtained indicate that the fluctuations of returns are caused by both fundamental variables and behavioral variables. In the short term, all variables under investigation, except the variance of the return on equity, have a statistically significant effect on the behavior of the capital market. On the other hand, in the long term, the market behavior is affected by gross domestic product, inflation, liquidity, ROA, and herd behavior.

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