Evaluating quantitative stock selection strategies in Tehran Stock Exchange

Authors

1 Assistant Professor, Dep. of Industrial Engineering, Amirkabir University of Technology, Tehran, Iran

2 M.Sc., Dep. of Industrial Engineering, Amirkabir University of Technology, Tehran, Iran

Abstract

There are different strategies for selecting stocks, and different investors use different strategies according to their risk tolerance or their expected rate of return. In this study, the profitability of a broad range of stock se-lection strategies in Tehran Stock Exchange over the period 1370-1383, has been examined, and it has been investigated whether the successful strategies in other countries are also successful in Iran or not. Although a lot of comprehensive studies have been done in the developed and in a considerable number of emerging mar-kets, and successful strategies have been well documented in those countries, such studies have never been done in Tehran Stock Exchange. The sample is all the companies in Tehran Stock Exchange in the aforemen-tioned period. Also, in order to evaluate different strategies, various portfolios have been formed for each year according to each strategy. Then, computing the return of winner portfolios, those strategies generating the maximum return in excess of market return, are presented. The evaluation of the performance of the strate-gies has been done regarding various diagnostics criteria like risk and return. The results show that value strategy is the most successful strategy in Iran and generates significant excess return, in contrast to growth, size, price momentum and fundamental strategies. In other words, the most successful strategy in Iran is the multivariate strategy which selects the stocks with high E/P, B/P, C/P, S/P and D/E. Moreover, as apposed to the developed markets and a considerable number of emerging markets, size and momentum strategies are not profitable ones in Tehran Stock Exchange and can not distinguish between profitable and unprofitable stocks.

Keywords