Testing representative bias using fundamental accounting measures: Evidence from TSE
Abstract Individuals are thought to make biased judgments under uncertainty, because limited time and cognitive resources lead them to apply heuristics like representativeness. Representativeness is the tendency of individuals to classify things into discrete groups based on similar characteristics....
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | fas |
| Published: |
Allameh Tabataba'i University Press
2014-02-01
|
| Series: | مطالعات تجربی حسابداری مالی |
| Subjects: | |
| Online Access: | https://qjma.atu.ac.ir/article_745_dc27d82331eac496001c926cb94bcc08.pdf |
| _version_ | 1797378349529563136 |
|---|---|
| author | Ahmad Badri Neda Goodarzi |
| author_facet | Ahmad Badri Neda Goodarzi |
| author_sort | Ahmad Badri |
| collection | DOAJ |
| description | Abstract
Individuals are thought to make biased judgments under uncertainty, because limited time and cognitive resources lead them to apply heuristics like representativeness. Representativeness is the tendency of individuals to classify things into discrete groups based on similar characteristics.
In order to measure the representativeness bias, we examine the relation between past trends and sequences in financial performance and future returns in Tehran stock exchange (TSE) between1380-1390. We also investigate the impact of consistent sequence of financial performance in future return. Finally, the study examines the effect of subsequent performance that confirms or contradicts past pattern of growth on the predictability of future returns. The study uses annual data consisted of 800 firms-year and 3200 firms-quarter. The main research methodology is portfolio study. This study calculates financial growth rates over two periods: one year (four rolling quarters) and five years (using annual data). Three accounting measures of performance are calculated: sales, net income, and operating income.
The results indicate that the abnormal returns in one-year trend are significantly positive. But abnormal returns in the year after five years of high or low growth are statistically and economically insignificant. In addition, we find little evidence about the consistency or pattern of firm performance effects on expectations of future returns. Finally, the past trend and pattern of growth do not lead to predictable returns following subsequent performance that confirms or contradicts this past trend. |
| first_indexed | 2024-03-08T20:06:36Z |
| format | Article |
| id | doaj.art-e845d4658b8c4e60b3629152e68eafb4 |
| institution | Directory Open Access Journal |
| issn | 2821-0166 2538-2519 |
| language | fas |
| last_indexed | 2024-03-08T20:06:36Z |
| publishDate | 2014-02-01 |
| publisher | Allameh Tabataba'i University Press |
| record_format | Article |
| series | مطالعات تجربی حسابداری مالی |
| spelling | doaj.art-e845d4658b8c4e60b3629152e68eafb42023-12-23T10:35:47ZfasAllameh Tabataba'i University Pressمطالعات تجربی حسابداری مالی2821-01662538-25192014-02-0111435788745Testing representative bias using fundamental accounting measures: Evidence from TSEAhmad Badri0Neda Goodarzi1Associate Prof., ShahidBehesheti Universityکارشناس ارشد دانشگاه شهید بهشتیAbstract Individuals are thought to make biased judgments under uncertainty, because limited time and cognitive resources lead them to apply heuristics like representativeness. Representativeness is the tendency of individuals to classify things into discrete groups based on similar characteristics. In order to measure the representativeness bias, we examine the relation between past trends and sequences in financial performance and future returns in Tehran stock exchange (TSE) between1380-1390. We also investigate the impact of consistent sequence of financial performance in future return. Finally, the study examines the effect of subsequent performance that confirms or contradicts past pattern of growth on the predictability of future returns. The study uses annual data consisted of 800 firms-year and 3200 firms-quarter. The main research methodology is portfolio study. This study calculates financial growth rates over two periods: one year (four rolling quarters) and five years (using annual data). Three accounting measures of performance are calculated: sales, net income, and operating income. The results indicate that the abnormal returns in one-year trend are significantly positive. But abnormal returns in the year after five years of high or low growth are statistically and economically insignificant. In addition, we find little evidence about the consistency or pattern of firm performance effects on expectations of future returns. Finally, the past trend and pattern of growth do not lead to predictable returns following subsequent performance that confirms or contradicts this past trend.https://qjma.atu.ac.ir/article_745_dc27d82331eac496001c926cb94bcc08.pdfbehavioral financerepresentative biasfundamental accounting measuresconsistency of past performancedisconfirming informationconfirming information |
| spellingShingle | Ahmad Badri Neda Goodarzi Testing representative bias using fundamental accounting measures: Evidence from TSE مطالعات تجربی حسابداری مالی behavioral finance representative bias fundamental accounting measures consistency of past performance disconfirming information confirming information |
| title | Testing representative bias using fundamental accounting measures: Evidence from TSE |
| title_full | Testing representative bias using fundamental accounting measures: Evidence from TSE |
| title_fullStr | Testing representative bias using fundamental accounting measures: Evidence from TSE |
| title_full_unstemmed | Testing representative bias using fundamental accounting measures: Evidence from TSE |
| title_short | Testing representative bias using fundamental accounting measures: Evidence from TSE |
| title_sort | testing representative bias using fundamental accounting measures evidence from tse |
| topic | behavioral finance representative bias fundamental accounting measures consistency of past performance disconfirming information confirming information |
| url | https://qjma.atu.ac.ir/article_745_dc27d82331eac496001c926cb94bcc08.pdf |
| work_keys_str_mv | AT ahmadbadri testingrepresentativebiasusingfundamentalaccountingmeasuresevidencefromtse AT nedagoodarzi testingrepresentativebiasusingfundamentalaccountingmeasuresevidencefromtse |