Misevaluation and Behavioral Biases in the Tehran stock exchange

According to efficiency market hypothesis security prices respond quickly to new information and accurately reflect their fundamental values. More recent work indicates that market frictions and the psychological limitations of traders can cause asset prices to deviate from their fundamental values for a considerable length of time. To investigate theoretical concepts, the composite error model and event study approach and for specification model Particular Swarm Optimization were used in this study. The results from Coelli one-sided likelihood ratio test in the event period shows that there are the biases in IKCO’s returns. This study develops an empirical method that tests for and estimates the degree of valuation bias. Being better able to detect valuation bias reveals profit opportunities and may improve the efficiency of financial markets if it sufficiently changes trader behavior.