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The Role of Information in Stock Market

Author

Listed:
  • Mahmood Mahmoodzadeh

    (Firoozkooh Branch, Islamic Azad University, Firoozkooh)

  • Saleh Ghavidel

    (Firoozkooh Branch, Islamic Azad University, Firoozkooh)

  • Mir Hosein Mousavi

    (Alzahra University)

Abstract
With relying on game theory, this paper investigates the role of information played in decisions of economic agents in Tehran Stock Exchange (TSE). The behavior of economic agents in a company in the Cement, Lime & Gypsum industry named Tehran Cement listed on the TSE has been investigated through GARCH class models for the period of July 1999 to June 2006. The results suggest that general information through GARCH (1, 1) model affects the company stock price, while private information through GARCH (2, 1) model affects the trading volume. Having explored general and private information, we studied the role of this information in determining stock price and trading volume, according to which the results demonstrate that general information has more influence than private information in determining stock price and trading volume. Therefore, we accept information cascades theory in TSE which means economic agents mostly rely on general information in their trading decisions.

Suggested Citation

  • Mahmood Mahmoodzadeh & Saleh Ghavidel & Mir Hosein Mousavi, 2014. "The Role of Information in Stock Market," Proceedings of International Academic Conferences 0701697, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:0701697
    as

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    File URL: https://iises.net/proceedings/12th-international-academic-conference-prague/table-of-content/detail?cid=7&iid=84&rid=1697
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    References listed on IDEAS

    as
    1. Russ Wermers, 1999. "Mutual Fund Herding and the Impact on Stock Prices," Journal of Finance, American Finance Association, vol. 54(2), pages 581-622, April.
    2. Romer, David, 1993. "Rational Asset-Price Movements without News," American Economic Review, American Economic Association, vol. 83(5), pages 1112-1130, December.
    3. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
    4. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    5. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 797-817.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    herd behavior; social learning theory; information cascades; ARCH/ GARCH Models;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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