The Framework of Relation of Investors Overconfidence Behavior with Stock Return

Many finance researchers know disability of classical models of assets pricing and efficient market hypothesis to explain predictable patterns in securities return, anomalies and mispricing in assumption of full rationality of economic agents. Based on this assumption, the probability that people will mistake is random and its effects quickly remove by other rational investors. By relaxing this assumption, some models developed based on specific trading strategies and others based on cognitive biases and psychological characteristics of investors. One of the most common cognitive biases in the field of psychology is overconfidence that has been defined as overestimation (optimistic) of precise of private information. Many researchers explain stylized facts such short-term continuation (momentum) and a long-term reversal in stock returns, high levels of trading volume, excessive volatility, and a disproportionate amount of risk borne by investors by using overconfidence bias. In this study, which tried to plan and test four hypotheses based on the data of 119 companies during the period from the beginning of the 1378 to end of 1386 (for 9 years) in regard to evidence documentation for aggregate overconfidence behavior. Results of study show that evidence for supporting aggregate overconfidence is not strong.