The relation between investor and price response with patterns in earnings surprises

In this research, the investors behavior and the price of shares has been studied against the adjusted patterns of EPS. In other words representative biases, which are the chief constituents of Barberis, Shleifer and Vishny (1998), were put into consideration. This study in Tehran Securities Exchange shows that investors transact just before observing the sample-size(that is earning–surprise adjustment in this study).this happens because of the non-formal insider information disclosure prior to profit – adjustment by the company itself. Quite interestingly, no significant transaction was observed after that event. Besides investors transacted quite significantly on the firs ten days before profit-adjustment so that there were heavy selling activity for adjustment with negative significance before formal announcements by the companies and intensive buying activities for adjustments with positive consequence. Therefore, it is dawned on us that the investors obtain insider information in one way or another to make transactions. Thus, no evidence was detected to verify the transactional behavior of the investors in accordance with the model put forward. Eventually, it becomes clear that investor's belief in profit-making does not parallel with constant positive profit.