Document Type : Research Paper
Authors
1 Faculty Member in Department of Economics, School of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran.
2 Associate Professor, Department of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran
Abstract
Conventional economics asserts that the presence of arbitrage in financial markets compels market participants to behave rationally in order to maximize profits. This assumption forms the foundation of the Efficient Market Hypothesis (EMH). In recent years, behavioral economics has questioned the assumption of efficiency and rational behavior in financial markets through studies that found a significant impact on financial markets from seemingly irrelevant factors such as weather conditions, air temperature, and pollution. This research aims to compare the explanations of these two views by analyzing daily data from the Tehran stock market index during two periods: February 20th, 2022 to February 19th, 2023 and February 20th, 2023 to February 19th, 2024.For this study, we utilized daily data on the growth rate of the dollar as an explanatory variable for the total capital market index growth in the conventional economic view. In the behavioral view, we included variables such as air temperature, weather conditions, and pollution index as explanatory variables. Given the nature of financial markets, we employed the EGARCH method.
The results of this research indicate that during the period from February 20th, 2022 to February 19th, 2023, when the dollar rate showed a significant upward trend, the explanatory power of behavioral variables decreased, with some losing their significance in explaining the total index. However, during the period from February 20th, 2023 to February 19th, 2024 (when the exchange rate was relatively stable), behavioral variables had a significant impact on the total index.
Keywords
Main Subjects
)