Proceedings of the 12th International Academic Conference, Prague

THE ROLE OF INFORMATION IN STOCK MARKET

MAHMOOD MAHMOODZADEH, SALEH GHAVIDEL, MIR HOSEIN MOUSAVI

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.

Keywords: herd behavior, social learning theory, information cascades, ARCH/ GARCH Models

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