Contrarian and momentum returns on Iran's Tehran Stock Exchange

This paper studies Iran's emerging Tehran Stock Market. Potential foreign investors, who have been able make direct investments since 2003, should study the recent history of the exchange in order to understand the risks that accompany the high returns. Using data on stock prices and volume over the period 1997-2002, this study looks at the crucial question of pricing efficiency, examining the relation of current prices and volumes to future returns. We apply the analyses of Jegadeesh and Titman [Jegadeesh, N., Titman, S., 2001. Profitability of momentum strategies: an evaluation of alternative explanations. Journal of Finance 61, 699-720], Conrad et al. [Conrad, J. S., Hameed, A., and Niden, C., 1994. Volume and autocovariances in short-horizon individual security returns. Journal of Finance 99, 1305-1329], Cooper [Cooper, M., 1999. Filter rules based on price and volume in individual security overreaction. The Review of Financial Studies 12, 901-935], and Gervais et al. [Gervais, S., Kaniel, R., and Mingelgrin, D. H., 2001. The high-volume return premium. Journal of Finance 61, 877-919] to this developing market. There is no evidence of “contrarian” behavior. Standard tests of autocorrelation and pricing efficiency find no evidence of anomalies in the short run. There is, however, evidence of “momentum” where past high performers have above-average return over an intermediate (3-12 month) horizon.