Providing a behavioral model for measuring the stock price bubble in the capital market

Document Type : Original Article

Authors

1 Ph.D. Candidate, Department of Financial Management, Faculty of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran.

2 Full Professor, Department of Business Management, Science and Research Branch, Islamic Azad University, Tehran, Iran.

3 Professor and faculty member of Islamic Azad University –Eslamshahr Branch, Department of Financial Management, Tehran, Iran.(Modern Financial Risk Research Group)

4 Assistant Professor, Department of Business Management, Shahre Qods Branch, Islamic Azad University, Tehran, Iran.

Abstract

The existence of price bubbles in different markets,and in general the bubble in price levels is one of the new theories in the field of macroeconomics.Basic patterns do not explain much about the causes of bubbles.For this reason, experts in the framework of theories related to behavioral sciences tried to explain the causes related to the formation of this component.The term bubble is more commonly used in financial markets when rising public expectations of future price increases will cause temporary price increases in the present.Therefore,the main purpose of this study is to provide a behavioral model for measuring the stock price bubble in the capital market.The method of the present study is descriptive-correlational and the statistical population of the study consisted of all companies active in the stock market in the period 1392 to 1399 due to the systematic elimination,143 companies were selected as a sample.We used logistic regression with Eviews to test the hypotheses.Behavioral factors identified include speculative behavior, behavioral irrationality,investor heterogeneity, and market expectations.The results showed that behavioral irrationality has a positive effect on the stock price bubble.Investor heterogeneity also showed a positive effect on the price bubble.On the other hand,market expectations and speculative behavior also had a positive effect on the stock price bubble.Therefore,it can be said that behavioral factors can have a positive effect on the formation of stock price bubbles. Therefore,the identified pattern has the necessary performance from a behavioral point of view.

Keywords

References

  • Abbasi, Gholamreza; Mohammadi, Hadi; Neshatavar, Amin. (2017). Investigating the role of the price bubble in creating fluctuations in the Tehran Stock Exchange (selected companies in the petrochemical and automotive industries), Financial Economics Quarterly, Volume 12, Number 43, pp. 133-152.
  • Ahmadi, Mohammad Ramadan; Qalambar, Mohammad Hussein; Lessons, Seyed Saber (2018). Investigating the effect of senior managers' overconfidence criteria on the risk of future stock price falls in companies listed on the Tehran Stock Exchange, Financial Accounting and Auditing Research, Volume 11, Number 41, pp. 95-123.
  • Ansari Samani, Habib; Nazari, Farhan. (2015). Identifying and Ranking Predictors of Stock Price Bubbles: Application of Logistic Regression and Artificial Neural Network, Quantitative Economics, Volume 13, Number 4, pp. 75-102.
  • Asadi, Ehsan; Zare, Hashem; Ebrahimi, Mehrzad; Piraei, Khosrow. (2017). Emotional Impulse and Stock Price Bubbles in the Framework of a Stochastic Dynamic General Equilibrium Model: A Case Study of Iran, Applied Theories of Economics, Volume 7, Number 2, pp. 115-150.
  • Balcilara, M.R. Gupta, C. Gupta & M. Woharc. (2016). Periodically Collapsing Bubbles in the South African Stock Market. Research in International Business and Finance, 38: 191-201.
  • Bashiri, S., Pahlavani, M., & Boostani, R. (2016). Stock market fluctuations and monetary policy in   Journal of Economic Modeling Research, 6(23), 103-157.
  • Borio, C. White ., )2004(,Whither Monetary and Financial Stability? The Implications of Evolving Policy Regimes, BIS Working Paper No. 147
  • Chen, S., C. Hsu & Z. Xie. (2016). Are There Periodically Collapsing Bubbles in the Stock Markets? New International Evidence. Economic Modelling, 52: 442-451.
  • Chi-Wei, S, Xiao-Qing, W, Haotian, Zh, Ran, T, Nicoleta-Claudia, M, Oana-Ramona, L.(2020). Testing for multiple bubbles in the copper price: Periodically collapsing behavior, Resources Policy. 2020 Mar; 65: 101587.doi: 1016/j.resourpol.2020.101587
  • Choi, N., Skiba, H., (2015). Institutional herding in international markets. Journal of Banking and Finance, 55, P.245-59.
  • Dadras,K, Toloie,A,. Radfar,A.(2020). Identifying and categorizing of effective factors on individual investors behavior in Tehran’s stock market (Behavioral finance perspective), International Journal of Finance and Managerial Accounting, 4(16).
  • Fama, E. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance. 25: 383-417
  • Fama, E.F. (2013). Two Pillars of Asset Pricing. Booth School, University of Chicago, Chicago, IL, USA.  Shiller, A. (2000). Inefficient Markets: An Introduction to Behavioral Finance, Oxford University Press.
  • G, Milevabc. M, Luba. P(2018). Deflating asset price bubbles with leverage constraints and monetary policy.Journal of Economic Behavior & Organization. Volume 155, November 2018, Pages 1-27
  • Wei(2018). Sentiment and asset price bubble in the precious metals markets. Finance Research Letters. Volume 26, September 2018, Pages 106-111
  • C., Camerer, C,. (2016).The Psychology and Neuroscience of Financial Decision Making. Journal Trends
  • Homm, U., Breitung, J. (2012). Testing for speculative bubbles in stock markets: a comparison of alternative methods. Journal of Financial Econometrics, 10: 198–231.
  • Hou, H., & Cheng, S. Y. (2017). The dynamic effects of banking, life insurance, and stock markets on economic growth. Japan and the World Economy, 41, 87–98.
  • Hui, C. S. (2010). Investor mood and financial markets.  Journal of Economic Behavior and Organization, 76(2), 267-282.
  • Ikeda, D. (2013). Monetary policy and inflation dynamics in asset price bubbles. Bank of Japan Working Paper Series, No.13-E-4.
  • Irandoust M. (2017).Metal prices and stock market performance: is there an empirical link? Resour. Policy.;52:389–392.
  • Itamar, C, Meital, G, (2017). TESTING FOR BUBBLES IN STOCKMARKETS WITH IRREGULAR DIVIDEND DISTRIBUTION, Finance Research Letters, doi:1016/j.frl.2017.12.015
  • Jang, J,.Kang,J.(2019). Probability of Price Crashes, Rational Speculative Bubbles, and the Cross-Section of Stock Returns. Journal of Financial Economics. Volume 132, Issue 1, April 2019, Pages 222-247
  • Janssen, D.J. Füllbrunn,S,.  & Weitzel,U.(2019). Individual speculative behavior and overpricing in experimental asset markets, Experimental Economics : 22, pp653–675.
  • Jarrow, R. (2018). An equilibrium capital asset pricing model in markets with price jumps and price bubbles. Quarterly Journal of Finance, 8(02), 1850005.
  • Jokara,H, Shamsaddini,K,.Daneshi,V.(2018). Investigating the Effect of Investors' Behavior and Management on the Stock Returns : Evidence from Iran ,Advances in mathematical finance & applications, 3 (3), pp41-52.
  • Jones, Brad, Rethinking Asset Bubbles: Reflections for the Age of Institutional Investing (December 5, 2017). Available at SSRN: https://ssrn.com/abstract=3083036 or http://dx.doi.org/10.2139/ssrn.3083036 .
  • Kamran Rad, Sedigheh (2016). Price bubble identification tests in Tehran Stock Exchange, 10th International Conference on Economics and Management, Rasht ,,, https://civilica.com/doc/650306
  • Kardan, Behzad, Wadi'i, Mohammad Hossein; Zufaqar Arati, Mohammad Hussein (2016). Investigating the role of behavioral tendencies (feelings and emotions) of investors in company valuation, accounting knowledge, Volume 8, Number 4, pp. 7-35.
  • Lee, J.H. & P. Phillips. (2016). Asset Pricing with Financial Bubble Risk. Journal of Empirical Finance, 38: 590-622.
  • Lee, J.H. and P.C.B. Phillips. (2015). Asset pricing with financial bubble risk. Journal of Empirical Finance, 38:590-622.
  • Li, J. (2016) The Evolutionary Game Analysis of Stock Market Herd Behavior in Information Asymmetry. Master Dissertation, Northwest Normal University, Lanzhou.
  • Liu, X.D., Liu, C., Liu, S.C. and Lu, J.J. (2014) Does Herd Behavior Increase Stock Price Volatility. Systems Engineering-Theory & Practice, 34, 1361-1368.
  • Madjumerd,M H, Gh.Shahiki Tash,M.n.(2017). Evaluation of Multiple Bubbles in the Stock Market of Tehran, Quarterly Journal of Quantitative Economics, Summer 2017, 14(2): 85-110
  • Narayan, P.K., S. Mishra, S. Sharma & R. Liu. (2013). Determinants of Stock Price Bubbles. Econ. Model, 35: 661–667.
  • Okpara, G. (2010). Do Rational Speculative Financial Bubbles Exist in the Nigerian  Stock  Market?  Interdisciplinary  Journal  of  Contemporary Research in Business.
  • Opera, C., Tanasescu, C., (2014).Effect of Behavioural Financial on Emerging Capital Markets. Procedia Eco-nomics and Finance Journal, 15:pp1710-1716.
  • Pablo, M,. P, Javier, P.(2017).Agents’ Behavior in Market Bubbles: Herding and Information Effects, Economics World, Jan.-Feb. 5(1).pp. 1, 44-51. doi: 10.17265/2328-7144/2017.01.005
  • Phillips, P., Shi, S., & Yu, J. (2015). Testing for multiple bubbles: historical episodes of exuberance and collapse in the S&P 500. International Economic Review, 56(4), 1043–1078.
  • Ramezani, Ali; Bagheri, Oveys (2020). Testing the effect of rational speculation price bubbles based on constraint theory on the real total rate of return of selected companies in the Tehran Stock Exchange, Investment Knowledge, Volume 8, Number 32, pp. 1-20.
  • Rezaei,N,.Elmi,Z.(2018). Behavioural Finance Models and Behavioural Biases in Stock Price Forecasting , Advances in mathematical finance & applications,, 3(4). Pp67-82.
  • Sadeghi Sharif, Seyed Jalal; Osulian, Mohammad; Afsharian, Amir Hossein (2016). Multiple Explosion Bubble Behavior Tests in Iran Stock Exchange and Housing (1998-2013), Asset Management and Financing, Volume 5, Number 4, pp. 129-142.
  • Sandra,A.(2020). Stock Markets, Market Crashes, and Market Bubbles, Psychological Perspectives on Financial Decision Making, pp 205-231.
  • Soheili, Kiomars; Fattahi, Shahram; Rahmaniani, Narges. (1399). Investigating the Impact of Emotional Shocks on the Stock Price Bubble Using the Dynamic Stochastic General Equilibrium Model (DSGE), Economic Studies and Policies, Published Papers.
  • Soni,R,. Rahul,M.(2016). behavioral finance “mind over market” ? a case study of techno bubble, SRJ'S FOR HUMANITY SCIENCES & ENGLISH LANGUAGE.3(17). pp 3887-3902
  • Harris, Sarah; Torabi, Taqi; Anwari Rostami, Ali Asghar (1399). Provide a model for estimating the probability of creating a price bubble in the capital market; Empirical and theoretical evidence from Tehran Stock Exchange, Investment Knowledge, Volume 3, Number 34, pp. 371-187.
  • Werner, J. (2014). Rational Asset Pricing Bubbles and Debt Constraints. Journal of Mathematical Economics, 53: 145-152.
  • Yao,W,  Gang ,L.(2018). Study on the relationship between investor sentiment and stock bubble,  Chinese Control And Decision Conference (CCDC), DOI: 1109/CCDC.2018.8407304
  • Yasushi,A,Yukihiko,F, Kozo, U, Nobuyu, k.(2020).(A)symmetric information bubbles: Experimental evidence, Journal of Economic Dynamics and Control110, January, 103744, /doi.org/10.1016/j.jedc.2019.103744.
  • Zheng,Ch, Cui,X.(2020).Simulation on Artificial Stock Market Bubble Based on the Perspective of Investor Behavior, IEIS, pp 407-420 : https://doi.org/10.1007/978-981-15-5660-9_31
  • Zhu, B., Niu, F., (2016).Investor sentiment, accounting information and stock price: Evidence from China. Pacific-Basin Finance Journal, 38(3), P.125-134.
International Journal of Finance & Managerial Accounting
Volume 7, Issue 27 - Serial Number 27
October 2022
Pages 241-258

Files

Share

How to cite

Statistics