Behavioral Analysis of Stock Returns Based on Assets Pricing Models in the Framework of Prospect Theory: Evidence from Companies Listed on the Tehran Stock Exchange

The major part of the research of the last two decades in the field of assets pricing models has been to more accurately identify the variables affecting stock returns and ultimately reduce errors and better explain stock returns in these models. On the other hand, in recent years, extensive research has been conducted on behavioral finance issues to explain stock returns by the psychological and behavioral characteristics of investors. In this regard, this study seeks to analyze the behavior of stock returns based on assets pricing models in the framework of prospect theory in companies listed on the Tehran Stock Exchange. This study was conducted using a sample of 120 companies listed on the Tehran Stock Exchange in the period from 2009 to 2020 and using the Fama-Macbeth regression approach. The results show that prospect theory has a significant effect on explaining stock returns in capital asset pricing models and the three-factor model and the five-factor model of Fama and French, so that with the introduction of prospect theory to this model their unexplained returns have been significantly reduced.