Assessment of Investor's Reaction to EPS Adjustment in Tehran Stock Exchange

Despite the fact that one of the main hypotheses of the efficient market is that the investors react rationally to the market announcements, researches show the investors’ reaction might be irrational. Many observations show over-reactions while many other show under-reaction behavior of investors. However, in this paper we research investors’ over-reaction and under-reaction toward positive and negative announcements in Tehran Stock Exchange. In the next step we check firm’s size effect on investors’ reactions. Our research sample is consisted of Tehran Stock Exchange firms from the year 1382 to 1388. In this research we used Cumulative Average of Abnormal Returns for measuring investors’ reactions. Results show that investors under-react to firms’ positive EPS announcements and overly there is observation which indicate investors’ under-reaction to the negative EPS announcements.