Behavioral finance research of the Tehran Stock Exchange by mathematical round numbers in the Tehran Stock Exchange’s overall index

Abstract

The formation of market interactions is directly affected by the decision-making of market players. This paper seeks to assess the presence of behavioral finance on the Iranian financial market as a factor influ-encing market participants’ decisions. The current study evaluates the existence of behavioral finance on the Iranian capital market by focusing on the phenomena of “price clustering” in the total index of the Tehran Stock Exchange. It proposes a new criterion for identifying behavioral bias in the financial market. One of the reasons for the lack of uniformity in the distribution of data in the total index of Tehran securities is the propensity of individuals to make individual decisions based on the index of total securities of Tehran. People use the total index as a criterion for making decisions, and when the total index reaches round numbers, their purchasing and selling behavior changes. The results of the study validate the phenomena of price clustering in round numbers in Tehran’s total stock index. In actuality, the lack of uniform distribution in the total index numbers of Tehran stock is an appropriate indicator of the existence of behavioral finance on the Tehran Stock Exchange. The main differentiating aspect of this study is the introduction of the overall index as a new measure compared to individual symbols for demonstrating behavioral bias in the financial market, which has been employed in previous studies. © 2023, Erdal Karapinar. All rights reserved.