Reference Points, Stock’s Major Historical Highs and Lows and Volume: Evidence from Tehran Stock Exchange

According to prospect theory, investors use reference points for their trading decisions; so that if stock price is below their reference points, they are unwilling to sell their stocks and therefore stock volume declines, but when the stock price exceeds their reference points, they are more likely to sell their stocks and accordingly stock volume increases. The identified reference points in previous researches are: purchase price, stock price in firm-specific events, IPO price and stock’s 52 weeks highs and lows.
In this research, stocks’s major historical highs and lows, without any time limits, are directly identified from price charts and are studied as reference points and to do so, the relation beween volume and these points is examined. The research Methodology is event study and by using panel data technique, the sample includes 52606 firm-week observations. Results of the research represents that when stock price reaches or exceeds major historical highs and lows, stock volume increases and therefore we can conclude that these levels are decision-making reference points for investors in Tehran stock exchange.