Investigating the Role of Investor Types in the Formation of Behavioral Bubbles in Tehran Stock Exchange Using Vector Autoregressive Model

Behavioral bubble models generally assume that individual investors as uninformed and irrational participants are trend chasers who can generate the bubble. On the contrary, institutional investors as informed group behave against the trend adopting a contrarian strategy. In order to test the above mentioned assumption, the present study considers behavioral models of the two groups of individual and institutional investors of 202 non-financial corporations in the Tehran Stock Exchange during the years of 1391 to 1394 using a Vector Auto-regressive model on a daily basis. The results confirm the assumption which mentioned that Individual investors are the agent of bubbles and institutional investors adopt contrarian strategy and trade against the trend. However, investigation of trades during the uptrend and downtrend of Tehran Stock Exchange suggests the stability of the behavioral pattern of both groups, so that the individual investors often underlie the bubble formation in the stock of small sized corporations.