An Investigation of Asymmetric Speed of Stock Price Adjustments to New Information in Tehran Stock Exchange

This paper aims to examine the hypothesis of asymmetric speed of stock price adjustment to new information in Tehran Stock Exchange (TSE). The econometric model is based on a partial price adjustment model which allows for asymmetric adjustment. The research sample consists of daily stock index data for eight sectors of TSE over the period 2008 to 2011. The results show that stock prices adjust asymmetrically to new information. Specifically, bad news are incorporated faster to current prices than good news. However, positive returns are three times more persistent than negative returns. An explanation for these results is that investors think that cost of failing to adjust prices to bad news is greater than good news. The results are consistent with the prospect theory of Kahneman and Tversky about risk aversion of investors and support it in TSE. Generally speaking, the results reject hypothesis of efficient market for TSE.