Analysis of Herd Behavior of Investors in Tehran Stock Exchange Using With State Space Model

Herd behavior by investors in capital markets is a behavioral bias that can cause undesirable effects on the performance and efficiency of markets. Many methods and models are provided by researchers and scholars to measure the herd behavior of investors in stock markets. Each of these models is appropriate for certain conditions. Beta Herding is the newest approach to measurement and evaluation of investors herd behavior in capital market. In this approach herd behavior of investors is measured through the cross-sectional dispersion of sensitivity factors (beta coefficients). In this article we will analyze the herding of investors toward market, value and size with beta herding approach and using state space model. Our study has conducted for the period of April 2001 to November 2008 (92-months). We find evidence of herding toward market factor in Tehran stock exchange. We also didn’t find any evidence of herding toward other factors such size and value. thus we can say that simultaneous attention to shares of small or big companies or simultaneous attention to growth or value stock have not affect the equilibrium relations in Iran's capital market.