Document Type : Original Article
Authors
1
PhD student in Financial Engineering, Yazd Branch, Islamic Azad University, Yazd, Iran.
2
Department of Financial Management, Yazd Branch, Islamic Azad University, Yazd, Iran.
3
Department of Financial Management, Yazd Branch, Islamic Azad University, Yazd, Iran
4
Department of Economics, Islamic Azad University, Yazd, Iran
Abstract
In a rational economy, stock price trends co-move with subjective cash flow expectations; however, if investors exhibit behavioral biases, stock price trends may instead co-move with subjective discount rate expectations. Therefore, this study investigates, for the first time, the comovement of stock prices in the Iranian stock market with subjective cash flow expectations, comparing it with subjective discount rate expectations. To this end, data were collected from the Tehran Stock Exchange, the Rahavard Novin database, and the analysts' consensus system over the period from 2011 to 2023. Furthermore, subjective cash flow growth expectations (SCF) and subjective discount rate expectations (SDR) were predicted using the Nonlinear Autoregressive with Exogenous Inputs (NNARX) model, and its predictive performance was compared with that of the traditional Vector Autoregression (VAR), Implied Cost of Capital (ICC), and Analyst Forecast Revision (RAF) models. Finally, the comovement of stock prices with the subjective expectations derived from the VAR, ICC, RAF, and NNARX models was examined. The results demonstrate that the NNARX model outperforms the RAF model, which in turn outperforms the ICC model, followed by the VAR model, in predicting SCF and SDR. Moreover, contrary to expectations, the covariance between the P/E ratio and SCF was negative, while the covariance between the P/E ratio and SDR was positive. This indicates an inefficient stock valuation pattern in the Iranian stock market, which can be attributed to economic sanctions, exchange rate fluctuations, and investors' behavioral biases.
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