Prediction of returns in stock market investment has attracted many researches in last decade. Contrary to the growing research on portfolio selection and in spite of the rich literature on the subject, yet there are some unsolved problems and unanswered questions. Besides, in Iran’s stock market, as an emerging market which is growing fast, there are plenty unreturned questions. The overall aims of the thesis are to determine whether it is possible to predict future stock market returns. One of the capital market anomalies and exceptions in finance are momentum and contrarian strategies. These strategies applied to serial correlation available in market and securities returns. This study examines the profitability of momentum strategies, contrarian strategies and strategies based on the volatility of past returns in Tehran Stock Exchange Market. A sample of 100 selected companies from 1383 to 1389 is utilized. In addition, this study investigates the interaction of momentum and contrarian strategies with each other and with volatility to assess the profitability of new combined strategies. The findings show that there are momentum and contrarian affects in Tehran Stock Exchange Market which confirms previous researches in this market. Considering the joint momentum/contrarian affects, reveals highly profitable combined trading strategies that are superior to the pure momentum and contrarian strategies. The idea behind our investigation is that the occurrence of price reversal signals a turning point in the market so that the price momentum will be accelerated. The triggering of a price reversal indicates a substantial mispricing, and hence draws the market attention so that the price momentum effect is stronger during the early stage of price reversal. Moreover, results of these combined strategies support the notation that momentum and contrarian effects are integrated. The investigation of early stage and late stage momentum strategies indicates that the most likely explanation of momentum profits is that they are partly due to delayed overreaction. The thesis also investigates whether contrarian profits can be improved by taking into consideration the short-term performance of stocks. This approach finds that the double-sorted late stage contrarian strategies are superior to single-sorted contrarian strategies. This study also demonstrates that past stock volatility can be used as an effective variable in combination of past returns to predict futures stocks returns. The double return/volatility strategies analysis reveals that volatility fails to enhance the contrarian effect while volatility significantly improves the pure momentum strategy returns. In last two decades many researches focused on applicability of theory of market efficiency. This theory is now under question whether it is hold anymore or what. Still there is controversy about it. This doubt comes from the recognition of the limitations of arbitrage, and from the clear evidences on predictability of security returns. In this thesis, as the strategies only used historical data to construct the portfolios, and they achieved a good performance in contrast to the market portfolio, the weak form of efficient market hypothesis, which approves reflection of historical data in stock prices, seems of no effect and is under question in Tehran Stock Market.
