The effect of divergent opinions of investors on the incorrect pricing of stocks with regard to the role of financial information quality and information asymmetry in the Iranian capital market

Document Type : Research Paper

Authors

1 Assistant Professor, Department of Accounting, Payame Noor University, Tehran, Iran

2 MSc, Department of Accounting, Payame Noor University .Tehran, Iran

Abstract

Introduction
 
Proponents of behavioral finance theory believe that the phenomenon of stock mispricing is persistent and is due to an irrational (behavioral) component of stock prices or information asymmetry between participants. Therefore, the difference of opinions and the opinions of investors can affect the stock price. Difference of opinion is a kind of inconsistency related to investors, in which investors' estimation of the value of assets is different, in fact, difference of opinion refers to the difference in the views of investors in the market about the shares of companies. In previous researches, it has been stated that stocks that face the most disagreement among investors show lower returns in the announcement of profits, so these two phenomena cannot be separated from each other.
 
 
Hypotheses
 
The thoughts and opinions of investors about the future of the capital market can have an effective role on the price trend and volume of market transactions. The thoughts and opinions of investors refer to their views on the future state of the capital market. In classical economics, there is a belief that people's behavior is based on rational expectations, and the meaning of rational expectations is based on the assumption that different classes and groups pay attention to all available information that affects the results of their decisions and use it intelligently. Therefore, they never make mistakes regularly. Market information strengthens the co-movement of stock prices, while firm-specific information weakens it. A significant part of stock mispricing can be attributed to lack of information transparency at the company level. Information asymmetry is considered as a type of market failure because when this factor exists in the market, it affects not only the market value as a whole but also the market value of companies in the stock market. In the behavioral finance literature, it has been stated that different opinions and opinions in the market regarding investment are derived from different trends and estimates regarding the expected return from investments. This heterogeneity in opinions regarding expected returns can be due to insufficient information in the market due to non-disclosure of necessary information by managers and companies. The movement of the stock price actually reflects the behavior of the investors in that market. According to the contents, the hypotheses of the present research are stated as follows:
H1: There is a positive and significant relationship between the divergence of investors' opinions and incorrect stock pricing.
H2: Information asymmetry intensifies the positive relationship between the divergence of investors' opinions and incorrect stock pricing.
H3: The quality of financial information weakens the positive relationship between the divergence of investors' opinions and stock mispricing.
 
 
Method
 
The current research is applied and from the methodological point of view, correlation is causal type (post-event). The statistical population under investigation in this research is all the companies admitted to the Tehran Stock Exchange and the period under investigation is from 2012 to 2021. In this research, the systematic elimination method was used to reach the sample, and 127 companies were selected as the research sample. Data analysis has been done by using the combined data method and with the data panel approach and by using Eviews 12 software to test the hypotheses.
 
 
Results
 
The results of the research hypotheses test showed that the divergence of investors' opinions aggravates the phenomenon of incorrect stock pricing. In addition, information asymmetry and the quality of financial information aggravate incorrect pricing. However, their interaction with the divergence of investors' opinions did not show any effect on incorrect stock pricing.
 
 
Discussion and Conclusion
 
The behavior and opinions of investors is the most prominent factor determining the price of assets and stocks, especially in emerging markets. It is difficult to obtain a fair valuation in the conditions of market uncertainty, which is the root of creating different opinions and opinions in the market about buying and selling stocks. Divergence of investors' opinions and behavior has a consistent relationship with incorrect stock valuation. In fact, when the difference of opinions and opinions between investors in the capital market increases, at the same time, the incorrect pricing of stocks will increase and stocks will be traded at a price different from the intrinsic value of stocks, because investors rely on their information. They will buy and sell shares, which can influence the behavior and opinions of investors. Information asymmetry can lead to wrong investment and financial decisions with the loss of investors and companies' stock value. The obtained results showed that the more our information inequality between internal managers and external investors increases, the incorrect pricing of stocks can also increase. However, the interaction of information asymmetry and divergence of opinions cannot intensify the incorrect pricing of stocks. The reason for this factor can be stated based on behavioral finance theories, that information asymmetry itself is a factor in intensifying the divergence of capital opinions. It has aggravated this factor from the very beginning, and now, with the interaction of these two variables, there is no noticeable change in the incorrect pricing of stocks. A higher quality of financial information can reduce mispricing of stocks. In fact, the inverse relationship between the quality of financial information and mispricing can be explained by improving the quality of information issued by companies. The information between inside and outside the company is reduced and finally the investors will buy and sell shares relying on the correct information, which can somehow bring the stock pricing closer to its intrinsic value. But finally, with the interaction of the quality of financial information and the divergence of investors' opinions, it was observed that the incorrect pricing of stocks will not intensify.
 

Keywords

References

 
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History

  • Receive Date: 02 April 2023
  • Revise Date: 13 September 2023
  • Accept Date: 19 September 2023

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