Analysis of the Behavior of Amateur and Professional Investors’ Impact on the Formation of Bubbles in Tehran Stock Market

Document Type: Research Paper


1 Assistant Professor of Economics, University of Kharazmi, Tehran, Iran

2 MSc Student of Economic and Social Systems, University of Kharazmi, Economic Department, Tehran, Iran


The presence of bubbles in the markets and its formation has been regarded by economists and they have been looking to develop methods that can be recognized by using appropriate method for the formation of bubbles. In this paper, first, the formation of bubbles is tested using the new unit root test known as Phillips test (Generalized Sup ADF test) for 50 companies in the Tehran Stock Exchange during the period of August 2011 to March 2013, and periods of bubble is shown by one and zero if otherwise. Then, the behavior of amateur and professional investors’ impact on the probability of the formation of speculative bubbles in the Tehran Stock is investigated and estimated using Panel Data Models for Binary Choice (Logit) model. Phillips test shows that 49 companies from 50 samples of Tehran Stock Exchange at different periods of time have experienced price bubbles. The results of the Panel Logit regression model indicate that the impact of trading amateur investors on the probability of the formation of speculative bubbles is different from the behavior of institutional or professional investors. That purchase and sale of amateur investors, with respect to trading of professional investors, increases the probability of bubble formation and it can be one of the main factors affecting the formation of bubbles in the stock market. Also, the results show that the P/E ratio and speed of turnover also increases the formation of bubbles, while company size as an index scale enterprises, leading to decline the possibility of a bubble in the stock market. 


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