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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS 

Abstract 

EVALUATION OF CAPITAL MARKET EFFICIENCY USING 

ARBITRAGE PRICING PATTERN 

COPY RIGHT © 2012 Institute of Interdisciplinary Business Research 

APRIL 2012 

VOL 3, NO 12 

Masoud Karimkhani 

M.A Student of Economical System Planing, Islamic Azad University, Dehaghan branch, Iran 2 

Amir Hortamani 

Faculty member of Economics Department, University of Dehaghan branch, Iran 3 

Batol Rafat 

Assistant professor, University of Isfahan, Iran 4 

Saedeh Beikzadeh 

M.A Student of Economical System Planing, Islamic Azad University, Dehaghan branch, Iran 5 

During the past-half century, the topic of capital market efficiency has been the subject of many theoretical and 

empirical studies. Since the parallel development of econometric models, capital market efficiency has been 

tested, the purpose of this study is that using the more sophisticated models of econometric concentrate on 

effecting of Tehran Stock Exchange. To do this, companies in Tehran Stock Exchange and macroeconomic 

variables were selected during 2006-9.The present research study Tehran Stock Exchange market performance 

through arbitrage pricing pattern based on factor analysis. So, the effective variables on stock returns were 

extracted by factor analysis. Then arbitrage pricing model was tested by multiple variables linear regression on 

the basis of least ordinary squares. The survey results indicate that with due attention to the lack of right pricing 

of financial assets(stock) and the lack of balance between risk-return and possible opportunities for arbitrage 

profits, Tehran Stock Market price is a deficiency market, so Tehran securities stock efficiency test is denied. 

Keywords: Expected return, market efficiency , factor analysis, diversifiable risk. 

JEL classification: G32, G38, G14, G12 

1. Introduction 

Being an efficient market is very important, because being an efficient capital market, stock prices are set 

properly and fairly in one hand, and the allocation of capital , which is the most important factor of production 

and economic development, in other hand, done well and efficiency (Jahankhany. Ali & Hossein Abdeh Tabrizi, 

1993, pp:7-23). 

According to the market efficiency, prices reflect all available information and are available. Now, Does 

the price show reaction to all this information? Or, to some more than others will pay attention? Will such 

opportunities exist? The answer is arbitrage and arbitrage profits. Because the sharp eyes are always looking for 

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APRIL 2012 

VOL 3, NO 12 

opportunities that optimistic people lose because of the traditional models. So long as there is the possibility of 

using arbitrage profit, the market will not be efficient and as long as there is discussions such …., There will be 

such opportunities. 

2. Literature 

From the early twenties century, the beliefs of some of securities stock market agents was that the 

historical study of prices contains useful information to predict future prices, so get with the price trend, changes 

patterns are recognized and tells us that often special trend will happen. Believer of this idea called on Chartists, 

because they focused on the charts ( Sinaie, 5:1373). The fundamental analysis was not required in this school 

and its supporters believed that the history is repeated ( Fisher & Jordan, 635:1991). 

From 1930s, other studies is started on the opposite views, the principal attention of these researches was 

on the being random of prices behaviors, and that the prices don not follow special trend. The results of the 

studies as an strong intellectual and the random behavior of prices was formed (Sinaie, 50:1993). 

Through experimental tests, the random walk school through empirical test proved that successive price 

changes in short term, such a day, a week or a month, is independent of each other (Fisher & Jordan, 635:1991). 

After the 1960s, investigation of the statistical form of prices behavior led to the problem of economic 

characteristics of the stock market, which in turn, led to random changes. This rise efficiency market idea ( 

Sinaie, 50:1992). Fundamentalists believe that an analysis of key economic and financial variables (actual value 

of stock) can be rought into contribution (Fisher & Jordan, 635:1991). According to this belief anyone can not 

gain return systematically more than the risk that accepted in long term. In such market, the stock price is a 

reflection of related information and the price changes have not special approach and is not predictable ( Fadaie 

Nejad, 7:1996). 

Being an efficient market is very important, because being an efficient capital market, stock prices are set 

properly and fairly in one hand, and the allocation of capital , which is the most important factor of production 

and economic development, in other hand, done well and efficiency (Jahankhany & Abdeh Tabrizi, 7:1993). 

Some financial economists have examined the stock market efficiency through the pricing mechanism of 

arbitrage, return creation devices and then they investigated risk relationship with return in securities stock 

market. They investigated the available patterns related to the process of return creation and risk relationship 

with return and introduced different factors as exogenous variables. In the following section, the theoretical 

model of pricing theory and also its test in Tehran stock security is investigated. 

2-1. Providing the arbitrage pricing models 

Arbitrage pricing theory is a new and different approach in determining of assets price and try to identify 

out- of- market factors that can impact on the securities. This theory relies on the law of one price, i.e. we cannot 

sold similar items with different prices in market. Risks associated with equity, arising from two sources. The 

first sources of risk are macroeconomic factors on the property distributed in the market and you can not destroy 

it with diversity. The second source of risk is the individual characteristic element. This element is unique to 

each of the securities and pricing theory can create diversification in portfolio based on arbitrage. So in an 

efficient markets, the risk is related only with systematic factors (macroeconomic), ( Vatshym & Paramur, 

1997). 

Introduction of arbitrage pricing model (APT) 

Suppose that two-factor model explain the process of stock returns (Elton & Kraber, 372-369:1955). 

Ri=ai + bi1 F1 + bi2F2 … +Fjei 2 

ai , bi1 , … , bik are fixed values of securities ( bij can be interpreted as sensitivity of agent i to j; Ri= stock 

returns; ei= error term with zero mean and fixed variance, and Fi represents the return of j factor ( to ease the 

element of time has been deleted). 

Supposed that co ( ei,ej)= 0 , co ( ei,fj)= 0, when i j, means that the error of any share or any phrase is 

uncorrelated with the error of the share. 

Investor who has a full range of portfolio, residual risk tend to zero and any systematic risk will be 

important. In this case, only the terms in the equation will affect the portfolios systematic risk are bik, bi1. 

So all of the investments and portfolios should be located on a page in bik, bi1 in The expected return space. 

If portfolio be above or below the page, there will be an opportunity for arbitrage without risk. Arbitrage will 

continue until the entire investments in a page are consistent. So risk balance equation and the return of a page 

in expected return space and bin, bi1 are : 

Ri= 

It is noteworthy that financial report ( ) or increasing in expected return for all units is bi1. So , 

are the resulting return due to risk tolerance related to the first and nth factor. So, F is the same as financial 

report. 

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Now, suppose a portfolio with equal with , the portfolio of bi1 is zero that we show it with Rf. If there is 

not risk-free assets, the return of a portfolio with zero beta be replaced with . With replacing with 

and the existence of a portfolio with biz=0 and bi1=1 , can be seen that: , where, Ri= 

portfolio, s return, bi1 to bik=0 . In total, or the additional expected return of 

portfolio, only considering, risk index is j and has a single scale of risk. 

2-2 Relationship between arbitrage pricing and capital market efficiency 

Efficient market model for return and securities price depend on different forces. The first major force is 

the effect of market changes on securities price changes that is out of control of investors and existing firms in 

the market. Other price fluctuations is caused by other factors such as industry effects, firm effect and etc. The 

market factor is important in stock pricing and the its adjustment is not possible through diversification, while 

we can eliminate other factors in diversification in assets basket. Therefore the risk related to market changes 

which is called unsystematic risk ( variability) risk is compensated through market. The possible variety of 

components and the impossible factor measure relationship scale or alignment of securities price changes with 

the rest ones and can be used in the regression analysis. Arbitrage pricing model introduces systematic risk 

firstly and then consider the efficiency. Thus, according to some researchers, arbitrage pricing model using 

several macroeconomic variables to explain variations in stock return or financial report helps to increase our 

understanding and ability to measure the risk. So, the possible relationship between stock return and financial 

report of variability of risk indicates the existence of arbitrage profit or breach of the same unit price and market 

efficiency in stock values pricing is inefficient. 

2-3 Arbitrage pricing 

The theory of arbitrage pricing ties to identify out-of-market factors that affect on securities. This theory 

relies on the law of one price. One advantages of this theory is that no need to the strong assumptions used in 

capital assets pricing model (Elton et.al, 124-115:2003). Unlike capital assets pricing model that limit much 

prioritization and return divisions, arbitrage pricing model explain expected return of asset only on the basis of 

weak assumptions and in where, there is not arbitrage opportunities (Jils & Lroy, 229-213:1991). 

The relationship of risk with stock rise from two sources. The first source of risk are macroeconomic 

factors that affect on all securities. The effect of all these factors on all assets is distributed in market and cannot 

eliminate it with diversification in stock. The second source of risk is individual characteristic element. This 

element is unique to each of securities and you can create diversification in portfolio on the basis of arbitrage 

pricing theory, so in an efficiency market, financial report related only to the systematic factors 

( macroeconomics). 

In arbitrage pricing theory is supposed that arbitrage profit opportunities is quickly eliminated through 

competitive forces, i.e. the investor cannot gain the expected positive return on each of set of assets without risk 

tolerance and without special investment ( Bery et.al, 42-29:1988). 

Generally, arbitrage pricing theory discussions emphasis on the subject that the return of asset is divided 

by expected return and unexpected one. So arbitrage pricing theory predict that public news affect on the total 

rate of stock but in different amounts. From this aspect, arbitrage pricing theory is more common than capital 

assets pricing model. Because it believes that additional factors influence on the rate of return of asset ( 

Katberson, 160-158:1966). 

2-4 Arbitrage pricing theory factors 

The major problem in investigating of arbitrage pricing theory is that it dose not offer any discussion about 

events and factors that influence on all assets. Coordinated movement of asset prices reflect fundamental and 

independent factors, but anyone still determined these economic variables ( Chen et.al, 1986). 

So there is not a formal theoretical guidance for the selection of an appropriate group of economic factors 

that is used in arbitrage pricing theory model ( Azir & Yonizava, 591-568:2006). 

Since the nature and the number of affecting factors in arbitrage pricing theory is not specified, two 

approach are used for practical and empirical implementation of the theory. The approach used originally 

presented by Gohar (1978) and then developed by Ross and Roll (1980) and relies on factor analysis to estimate 

simultaneously common factors and also factor market to determine securities return. The second approach is 

against the factor analysis one. Chen et.al (1986)tried to made use of macroeconomic variables to explain capital 

assets return in arbitrage pricing theory . So macroeconomic variables were used as used factors for the process 

of calculation of stock returns in arbitrage pricing theory (Chen et.al, 382-361:1986). 

Selection of factors through macroeconomic variables model in this approach for practical and empirical 

implementation of the theory of arbitrage pricing can be avoided from factor analysis and instead of it. Factor 

Betas are measured through the amount of sensitivity of securities returns to changes in groups of 

macroeconomic variables through the method of time series. This approach is the same as two stage method 

used by Fama and Mac Beth in the review of capital asset pricing model. A number of researchers 

experimentally have a review on relation between the fundamental economic variables and stock returns using 

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APRIL 2012 

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the theory of arbitrage pricing against the approach of capital assets pricing model ( Azyz & Yunizava, 591- 

568:2006). Chen et.al used of this ,ethod innovatively in 1986. 

One way to use of factors in arbitrage pricing theory and the corresponding sensitivity is the identification 

of factors as default and using of the relation of causal and effect. In many of experimental works, the 

mentioned factors are created by using of factor analysis and or by main component analysis. So, in the real 

world have not any interpretation. From this perspective, Chen et.al works have great value, as They tried to 

identify factors in arbitrage pricing theory using macroeconomic variables that be affective on assets returns. 

3. Spatial and temporal domain of research 

The temporal domain of research is a 5- years period from early 1385 to early 1390s, and the spatial 

domain of it is Tehran Stock Exchange. Iranian capital market has the following characteristics: a) It had the 

companies that have active trading symbol of he beginning of 85 years(85/01/01). B) the companies symbol that 

should not stop more than 6 month from March 2006 until the beginning of 90 (90/01/01). C) End of financial 

period should not be in 12/29. d) The availability of financial and accounting data. So 53 companies were 

selected based on above characteristic which is presented in table (1). 

Table (1) 

Company , s name symbol industry Insert date Company , s name symbol industry Insert date 

offset chaffset Publication, print, 

distribution 

11.1977 Iran Tractor Veppset Machinery and equipment 1996.04.19 

Alborz Drug Dalber Pharma 1996.12.14 Khazar cement Saroom Cement, lime and plaster 1995.06.08 

East Electric vehicle Kheshrag Automotive and 

parts 

manufacturing 

2003.11.18 Dorood cement Silam Cement, lime and plaster 2002.11.14 

Iran Khodro Khodro Automotive and 

parts 

manufacturing 

1993.05.06 Sepahan cement Sabic Cement, lime and plaster 1996.05.01 

Iran khodro Disel khavar Automotive and 

parts 

manufacturing 

1993.12 Shahrood cement Sobhan Cement, lime and plaster 2002.10.22 

Alomorad famerad Basic metals 2004.10.28 North cement sakhash Cement, lime and plaster 1968 

Iran Tractor forging khahen Automotive and 

parts 

manufacturing 

bama Kama Extraction of 

metal ores 

Bank of New 

economy 

venvin Banks, credit 

institutions and 

other financial 

institutions 

Persian bank vepares Banks, credit 



institutions 

Karafarin bank 

Behsaram Granite 

production 

vekar Banks, credit 



institutions 

Iran behnosh ghabhnosh Food & beverage 

except sugar 

Pars khodro kheoares Automotive and 

parts 

manufacturing 

Paksan shepaksa Chemical 

products 

Abadan 

shaptro Chemical 

petrochemical 

products 

Khark 

shekharak Chemical 

petrochemical 

products 

Esfahan Peghah sahrmz Food & beverage 

pasteurized Milk 

except sugar 

West Azarbaijan 

Peghah pasteurized 

Milk 

khorasan Peghah 

pasteurized Milk 

Behshahe Industrial 

development 

1997.04 Kalsimin nabroj Basic metals 1997.11 

2003.12.23 Kimi drug kachini Pharma 1991.10.04 

2003.10.29 Bahman group sefarood Automotive and parts 

manufacturing 

1993.12.17 

2004.08.04 Iron ore of GolGhohar vardel Extraction of metal ores 2004.04.29 

2003.04.03 Leasing industry and 

mineral 

zemgsa Other financial 

intermediations 

2004.11.26 

lebhman Ceramic and tiles 2004.02.14 Margarine shekf Food & beverage except 

sugar 

1993.11.30 

1999.12.18 Iran tractor industrial 

machinery 

drazak Machinery and equipment 2003.05.25 

1999.08.29 Propulsion machinery beshhab Machinery and equipment 2002.04.05 

sahgmat Food & beverage 

except sugar 

1994.12.22 Manganese mines of Iran ghalber Extraction of metal ores 2002.11.06 

1996.04.03 Tehran Oil fasdid Oil products, coke and 

nuclear fuel 

1976.12 

1998.10.22 Pars oil pizad Oil products, coke and 

nuclear fuel 

1967.12 

2003.03.03 Industrial drive khamharkeh Automotive and parts 

manufacturing 

1993.12.18 

2004.12.15 Botan industrial group lebotan Machinery and equipment 1996.12.27 

ghashkar Food & beverage 

except sugar 

2004.12.15 Farabi petrochemical shafara Chemical products 1996.04.02 

kapshir Food & beverage 1974.12 Iran tractor foundry khetrak Automotive and parts 1998.07.12 

except sugar 

manufacturing 

Toil pers shepli Chemical 

1996.12.26 Zamiad khazamia Automotive and parts 1998.12.15 

products 

manufacturing 

Chadormalo mineral shalab Extraction of 2003.07.12 Saipa khesapa Automotive and parts 1995.12.28 

and industrial 

metal ores 

manufacturing 

Gaber ibn hayan hatayed pharma 1991.06.13 Azin saipa khazin Automotive and parts 2001.06.17 

pharmacy 

manufacturing 

daroopaksh nachit Chemical 

1993.12.25 Disel saipa khakaveh Automotive and parts 1994.02.10 

products 

manufacturing 

Tosheh pars 

khakaveh Automotive and 1995.12.27 Industrial group 

vesna investments 2003.12.20 

investments 

parts 

manufacturing 

investments 

Manufacture of taira Chemical 

2004.10.20 Iran behshahr 

herbicide 

products 

54



4. Introducing variables 


APRIL 2012 

VOL 3, NO 12 

The research variables consist of prices and returns of computational stock price of accepted companies and 

registered market indicators in Tehran Stock Exchange in average and national and international economic 

information which is presented in table (2). 

Stock price returns is as follows: 

i= Stock return 

pt i = Stock price in t time. 

P i t-1= Stock price in t-1 time. 

5. Research methodology 

1 

2 

3 

4 

5 

Crude Oil (petroleum) - Monthly 

Price 

Crude Oil (petroleum); Dated 

Brent - Monthly Price 

Crude Oil (petroleum); Dubai 

Fateh - Monthly Price 

Crude Oil (petroleum); West Texas 

Intermediate - Monthly Price 

Commodity Fuel (energy) Index - 

Monthly Price 

Ri= 

Table (2) Variables 

10 Mony-euro 

11 Mony-pound 

12 Mony-yen 

Money is the coins or bank notes that you use to 

buy things, or the sum that you have in a bank 

13 account 

14 Merchandise market(capital market) 

6 Total index tehran stock exchange 15 Consumption pice index 

7 Gold old disign -iran 16 Production pice index 

8 Gold new disign-iran 17 Export pice index 

9 Mony-dollar 

Arbitrage pricing model is used for the test of efficiency of market through factor analysis with 

determining of covariance matrix of observed variables or the same research variables and then estimation the 

number of factors and factor loading matrix using factor analysis method and, finally, the estimate of financial 

reports using factor loading and regression analysis and market efficiency was evaluated. 

For statistical hypothesis testing, analysis of variance using F test and for the being significant regression 

coefficient using T test, then the significant coefficient of determination ( R 2 ) the presence or absence 

relationship between independent and dependent variables were examined. 

6. Estimation results of arbitrage pricing model 

According to the literature method of Chen, Roll and Ross, factor presupposition based on Bartlett 

sphericity test was evaluated and appropriate subject of data to factor analysis was performed with KMO and 

Bartlett test . KMO and Bartlett , s test results is presented in table (3). 

Table (3) KMO and Bartlett's test 

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .703 

Source: Calculations researcher 

Bartlett's Test of Sphericity Approx. Chi-Square 1.763E5 

df 136 

Sig. .000 

In order to demonstrate a sufficient sample size for factor analysis should be used of mentioned tests, so 

that it can be seen the value of K.M.O is equal with 0.703 (table 3) that indicate enough samples for this study, 

the minimum value for the index is 0.5. 

Using software such as STATESTICA, SPSS, EVIEWS and factor analysis techniques, we take the factor 

values for each of companies, and consider them as independent variables. Table (5) represents factor score 

values for each variables. 

55



Table (4) of the total variance explained by factors 

Extraction Sums of Squared 

Extraction Sums 

of Squared 

Initial Eigenvalues 

Loadings 

Loadings Rotation Sums of Squared Loadings 

% of Cumulative 

% of 

% of Cumulat 

Total 

Variance % Total Variance Cumulative % Total Variance ive % 

1 7.774 45.729 45.729 7.774 45.729 45.729 7.513 44.195 44.195 

2 5.94 34.944 80.673 5.94 34.944 80.673 5.964 35.081 79.276 

3 1.356 7.977 88.65 1.356 7.977 88.65 1.594 9.375 88.65 

Extraction Method: Principal Component Analysis. 


Table(5) 

Component 

Table(5-1) matrix of factor scores 

Table (5-2) 

rotation matrix of 

factor scores 


Table (5-3) 

Coefficient matrix 

of factor scores 

APRIL 2012 

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1 2 3 1 2 3 1 2 3 

Crude Oil (petroleum) - Monthly Price 

Crude Oil (petroleum); Dated Brent - 

0.436 0.882 0.098 0.07 0.979 0.122 -0.004 0.171 -0.035 

Monthly Price 

Crude Oil (petroleum); Dubai Fateh - 

0.431 0.886 0.113 0.064 0.983 0.108 -0.005 0.174 -0.046 

Monthly Price 

Crude Oil (petroleum); West Texas 

0.485 0.854 0.094 0.127 0.971 0.124 0.003 0.168 -0.033 

Intermediate - Monthly Price 

Commodity Fuel (energy) Index - Monthly 

0.388 0.897 0.088 0.021 0.972 0.131 -0.011 0.169 -0.028 

Price 0.435 0.884 0.035 0.069 0.966 0.184 -0.004 0.161 0.01 

Gold old disign -iran 

- 

0.958 0.067 0.064 0.913 0.307 0 0.118 0.046 -0.038 

Gold new disign-iran 

- 

0.975 0.144 0.01 0.957 0.231 0.038 0.125 0.026 -0.002 

Money-dollar 

- 

0.848 -0.42 0.154 0.945 -0.1 0.13 0.128 -0.049 0.105 

Money-euro 

- 

Money-pound 

0.783 0.294 0.319 0.616 0.483 0.434 0.076 0.03 0.248 

-0.236 0.716 0.282 -0.49 0.622 -0.145 -0.075 0.144 -0.18 

Money-yen 

- - 

Money is the coins or bank notes that you 

0.908 0.356 0.102 0.976 -0.009 0.098 0.131 -0.028 0.07 

use to buy things, or the sum that you have 

- 

in a bank account 0.932 0.258 0.066 0.96 0.125 -0.044 0.127 0.016 -0.047 

Merchandise market(capital market) -0.725 0.405 0.289 -0.826 0.163 -0.255 -0.113 0.074 -0.201 

Consumption pice index 

- 

-0.255 0.322 0.781 -0.119 -0.211 -0.848 -0.013 0.067 -0.575 

Production pice index 

- 

-0.419 0.595 0.483 -0.61 0.276 0.561 -0.086 -0.008 0.364 

Export pice index -0.601 0.668 -0.22 -0.808 0.332 0.305 -0.113 0.037 0.175 

Total index tehran stock exchange 


0.863 0.016 0.343 0.792 0.409 -0.262 0.101 0.099 -0.237 

Based on research findings in the table (4),(5), results of study are presented. F1, F2, F3 factors are assumed as 

independent variables in this stage, and average monthly returns of companies (before standardization) is 

considered as dependent variables, so with 3- variables regression equation . cross- sectional, the balance 

equation ( or financial report) was derived. The results of this regression is given in table (6). 

Table (6) Equation to balance risk and return 

Coefficient Std. Error t-Statistic Prob. 

C(0) 1.402567 0.153499 9.137306 0.0000 

C1) -0.322805 0.153523 -2.102650 0.0356 

C(2) 0.169212 0.153523 1.102195 0.2705 

C(3) 0.174314 0.153523 1.135428 0.2563 

R-squared 0.002176 Mean dependent var 1.402567 

Adjusted R-squared 0.001233 S.D. dependent var 8.661377 

S.E. of regression 8.656035 Akaike info criterion 7.155648 

Sum squared resid 237968.0 Schwarz criterion 7.163276 

Log likelihood -11373.48 Hannan-Quinn criter. 7.158383 

F-statistic 2.308390 Durbin-Watson stat 2.102797 

Prob(F-statistic) 0.074534 

Source: Calculations 

researcher 

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7. Analysis of results 


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In this study, the researcher wants to answer the question that whether Tehran Stock Exchange market is 

the efficient market? The research hypothesis of this study were as follows: 

First hypothesis: The return process in Tehran Stock Exchange is linear. According to table (6), it is seen 

that the F test statistic is calculated as (2.30) is not significant at the 5% significance level. i.e. , there is not any 

linear relationship between three factors of inevitable variability of risk and stock return of companies. In other 

words, hypothesis of existence of a linear relationship between return and estimated faces are not accepted. 

Second hypothesis: Stock return of accepted companies in Tehran Stock Exchange is always influenced 

by a number of macroeconomic variables. It is seen that factors statistic value except first factor is not 

significant in the meaningful level of 5%. 

Third hypothesis: there is an arbitrage opportunities in Tehran Stock Exchange. 

Coefficient of determination of this hypothesis is achieved 0.002. The table (6) represent these values only 

2 ppt of the variability of dependent variable of price return could be described by the variability in independent 

variables (factors), and 99% of the rest of the variability of dependent variable could be described by other than 

these factors. The correlation coefficient between two variables is achieved +o.o4 ( table 6) and indicates that 

the direction of relationship between two variables is positive. Given the potential value in significant level of 

5% ( 0.075), the null hypothesis is not rejected and the opposite hypothesis is not confirmed. 

So the results of hypothesis tests indicate that changes by uncommon factors describe the total expected 

return of Tehran Stock Exchange. Therefore, Tehran Stock Exchange market is not an efficient market. The 

results of this hypothesis test are in agreement with the results of Namazi & Shushtaryan (1374), Sadeghi Batani 

(1384), Jamali (1384), and are not in agreement with the results of Samadi et.al (1386). 

Also, according to the results of factor analysis and the introduction of three factors as the main 

components that the total variance of the portfolio is allocated to it, It was found that on the bases of F statistic , 

there is not any linear relationship between the three factors identified and the company , s stock price return. 

In this study, in order to identify the effect of macroeconomic variables on stock return of accepted 

companies in Tehran Stock Exchange was used of t. test, that indicates that among three factors which was 

introduced as financial report, only money factor is significant, and the role of money variables in the stock 

market is efficient. In confirmation of this problem can be pointed out to the Roll and Ross , phrase in 1995. 

The main core of ATP is the identification of this point that only a small number of systematic factors 

affect on long term average return of financial assets. ATP model does not deny many factors affecting on daily 

price changes of a share or securities, but ATP concentrate on major factors that derive total return of assets in 

large portfolios. You can identify these factors and benefit of internal increasing and their impact on portfolio 

return. (Roll & Richard & Ross, 1995). 

Based on research findings, the relationship identified between factors as systematic risk sources ( 

impossible variation) of Tehran Stock Exchange and real return of portfolio is not significant . based on research 

findings, only 2% of fluctuations that impact on total market introduced as systematic fluctuations and the rest 

ones are fluctuations that cannot be expressed as common factors. In other words, nearly 99% of fluctuations of 

the stock return of listed companies in portfolio are as the specific variance of each company that has reasons 

other that systematic factors (impossible variation). So you can conclude that a lot of variance n return of each 

portfolio company has unclear reason. market for this type of risk has not any reward to the investor. Hence, the 

hypothesis of lack of a arbitrage opportunities in Tehran Stock Exchange is rejected, and because of 

misappropriate pricing of stock, arbitrage opportunities exist in that market. So, due to this point that nearly 

99% of stock return fluctuations in selected sample are without explanation and stock prices do not reflect 

related data properly, the capital market is not efficient. It should be noted that the concept of efficient market 

performance in the strong sense of efficiency is unproven; i.e. the existence of confidential information even in 

the world important markets is unavoidable , and That some traded non-fair trades on more that what model 

showed, as according to research results, successful percent of investment based on information reflecting is 

very low, and is not good figure for the successful investors, and you can not expect that Iran capital market be 

successful in fundraising. The investors prefer the rational risks in long term, and do not throw at risk their 

capitals. 

This fact is clear that most of the changes and deviations in the observed returns still have unanswered. 

This shows that in Tehran Stock Exchange all information is not reflected in prices, in other words, Iran , s 

capital market is not efficient and therefore the price setting is not correct and there is arbitrage opportunities. 

8. Test the accuracy of estimation 

For the suitability of estimated regression, the following hypothesis ( classic hypothesis is estimated which 

represents the regression accuracy. The tests used for the accuracy of estimation including t-test, AutoRun 

regression, Dissimilar conditional variance ( ARCH) and Watson camera test. 

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� Zero test of the error term mean ( E(u1)=0) 


APRIL 2012 

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According to table (7) zero mean hypothesis using t- test with the 5% level was examined and the level of 

95% to zero with the value of the level of 5 % indicates that the average of error term is zero. The results of 

tables indicates that the reminders are normal. i.e. the reminders have zero mean value. Therefore, The mean 

hypothesis of research equation (equation results in table (6) which is zero, is accepted. 

Table (7-a) Zero test of the error term mean 

Test Value = 0 

Sig. (2- 

95% Confidence Interval of 

the Difference 

t df tailed) Mean Difference Lower Upper 

Unstandardized Residual .000 3177 1.000 .00000000 -.3010120 .3010120 


Unstandardized 

Residual 


Table (7-b) Zero test of the error term mean 

N Mean Std. Deviation Std. Error Mean 

3178.000000000 .000000000 8.654602889 .153521851 

� The test of constancy of error term variance ( Vra (u1)= 

According to table 8 , it is seen that calculated value of F statistic test equally (X 2 ) is 0.0005. This value is 

in the rejection area of the front hypothesis. So. Null hypothesis is not rejected in significance level of 5%, and 

the significant of regression equation is not confirmed. Therefore, the front hypothesis is rejected and the null 

hypothesis is accepted. i.e. there is not any relationship between the reminders and explanation variables. In 

other words, the variance of desired variables is constant and the changes will not increase during the course of 

time, and the hypothesis of research equation ( the results of equation of table6) is similar and is accepted. 


Table (8)The test of constancy of error term variance(ARCH) 

F-statistic 0.000520 Prob. F(1,3177) 0.9818 

Obs*R-squared 0.000520 Prob. Chi-Square(1) 0.9818 

Test Equation: 

Dependent Variable: RESID^2 

Method: Least Squares 

Sample (adjusted): 2 3180 

Included observations: 3179 after adjustments 

Variable Coefficient Std. Error t-Statistic Prob. 

C 74.88535 59.01023 1.269023 0.2045 

RESID^2(-1) -0.000404 0.017742 -0.022793 0.9818 

R-squared 0.000000 Mean dependent var 74.85508 

Adjusted R-squared -0.000315 S.D. dependent var 3325.786 

S.E. of regression 3326.309 Akaike info criterion 19.05774 

Sum squared resid 3.52E+10 Schwarz criterion 19.06156 

Log likelihood -30290.28 Hannan-Quinn criter. 19.05911 

F-statistic 0.000520 Durbin-Watson stat 1.999999 

Prob(F-statistic) 0.981817 

58



� To test the selfcorrelation of error term 


APRIL 2012 

VOL 3, NO 12 

Table (6) indicates that the Watson camera statistic is 2.7 which indicating their lock of errors selfcorrelation. 

Therefore, the null hypothesis is not rejected in significant level of 5% and the lack of self- 

correlation is confirmed. So, the front hypothesis is rejected and null one is accepted. i.e. the reminders of 

estimation equation have not self- correlations (table6). 

9.Conclusions and policy proposals 

The results of research findings indicate that the Tehran Stock Exchange is deficient market because of 

lack of proper pricing of financial assets (stock) and lack of balance between risk-return and possible 

opportunities for arbitrage profit. As soon as the production of information, it is not entered into market and its 

entrance to the market is not causal. Also, the effect of information on prices can not be in one end. 

According to the research findings, the misinterpretation of information can affect on market misleading 

and valuing . How to analyze information and the amount and optimism or pessimism level about information 

can affect on the pricing. Optimists are optimistic to deal with incoming information and set higher prices for 

them, and pessimists set lower prices even for that valuable information. In one hand, optimists risk more on 

unreliable futures and predict the future events incorrect. Also, market traders that have less information about 

upcoming events pay to stock price invasive than others. It is caused the market be inefficient in pricing of 

securities and they trusted more on incomplete information and excess in pricing based on. 

The effect of Tehran Stock Exchange on the country , s economic is undeniable. The main task of the 

capital market is moving up to the effective and efficient allocation of capital of these sources. Therefore, the 

necessity of an efficient market is felt. One of the necessary conditions for such a market is that all information 

including accountability and economistic information are available to investors free to interpret them the 

similar. Obviously, the discovery of the relationship between economistic and accounting variables and 

investment risk can be reinforcing the need to disclose of financial information. Therefore, the following 

recommendations from the study are provided: 

Stock Exchange officials with the obligation to timely reporting of information by companies can provide 

alternatives information on capital risk to investors to make economic decisions. This includes information such 

as economic, industry conditions and industry operating profit. 

According to results, the potential and actual investors in the Tehran Stock Exchange is recommended that 

you consider the affecting accounting variables in systematic risk and the amount profit as a substitute for 

systematic risk when buying or selling the companies stock. 

59




APRIL 2012 

VOL 3, NO 12 

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