Investigating the effect of non-systematic fluctuations on mispricing: Evidence of Companies Listed in Tehran Stock Exchange

Today, non-informed investors sudden arrival in the capital stock market cause disruption, and noise trading play a central role in the behavioral finance literature. These transactions cause the asset price to deviate from their intrinsic values. Equity prices are also jointly determined through intrinsic value and distorted trader risk. As a result, noise trading can lead to mispricing. The purpose of the present study is to investigate the effect of idiosyncratic volatility as an indicator of impaired trading on stock pricing. In this regard, 120 compnanies using systematic elimination method is selected as the sample of the research from companies listed in Tehran Stock Exchange for the period of 2011 to 2016. The results show that idiosyncratic volatility have a positive and significant effect on the level of stock pricing based on Rhodes (2005), Burger (1995) and Walking (1985) models. Therefore, idiosyncratic volatility as an indicator of noise trading has a positive and significant effect on inaccurate pricing based on all three methods. As a result, one of the strategies is to prevent mispricing, noise control or noise trading. As a result, the entry of uninformed traders into the stock market disrupts and causes the price to deviate from its intrinsic value. New financial behaviors express it. The results of the present study also emphasize this point. In this regard, one of the ways to prevent incorrect stock pricing is to control disruptive transactions.