An Empirical Analysis of Weak Form and Semi-strong Form Efficiency of Tehran Stock Exchange

Using market returns and the returns of 130 listed firms during 2006-2010, this paper investigates the weak-form and semi-strong form efficiencies of Tehran Stock Exchange (TSE). A plot and test of daily market returns correlation are used to test the week-form efficiency; and an event study methodology, with forecasted EPS adjustment announcements of higher than 40% as an event, is used to test the semi-strong form efficiency. The plot and test of daily market returns correlation, based on regression coefficient, show that TSE is not efficient in week form. Also, the analysis of cumulative abnormal returns (CAR) indicates a delayed market reaction to forecasted EPS adjustment announcements after the event date. However, since the price changes of stocks traded on TSE are bounded by 5% by regulating body, such a delayed reaction to EPS adjustment announcements is expected.This paper is different from other Iranian studies because it investigates both week-form and semi-strong form efficiencies; and also, it focuses on EPS adjustment announcements as event in both a daily and a weekly window.