Abstract
Article history: Received 5 January 2014 Received in revised format 8 March 2014 Accepted 16 March 2014 Available online 20 March 2014 In this paper, we address the stockholder overreaction and mean reversion in specified major industry groups in Tehran Stock Exchange (TSE). This paper investigates this issue with panel data analysis and with particular attention to the Box-Jenkins Approach for stationary diagnosis with appropriate order and modeling stock prices with regard to specific industries. The study processes modeling of panels where stationary and mean reversion takes place in complementary analysis. The sampling intervals are explored monthly within the past few years. The results reveal that mean reversion presence in three industry group stock prices and industry stock prices would not behave in certain pattern.
Highlights
The efficient market hypothesis (EMH), initiated at the University of Chicago's business school, states that stock prices fully reflect all available information, and no market participant is able to systematically make abnormal profit (Fama, 1970)
When the information set is limited to only historical prices, the market is considered to be in weak form efficient, and asset return is completely unpredictable from historical prices
This paper has investigated industry stock price panel mean reversion analysis by using the BoxJenkins approach with regard to specific industries
Summary
The efficient market hypothesis (EMH), initiated at the University of Chicago's business school, states that stock prices fully reflect all available information, and no market participant is able to systematically make abnormal profit (Fama, 1970). In spite of its popularity in practice, industry analysis has received limited academic attention in finance research in emerging and developing markets such as Tehran Stock Exchange (TSE). Broad industry classifications, such as standard industrial classification (SIC) codes have been implemented to identify homogeneous groups of firms, which engage in practice in close businesses These classification schemes merely reflect broad attributes, such that business units of the same industry could be competitive when they generate close substitutes but cooperative when their products are complements. The results of our research operation suggest that inverted AR root exist in price time series in seven numbers of ten industries and rest of industries has a less inverted AR root amounts, thorough this method for unit root tests the results implying that mean reversion take place in three industry groups
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