Invisible walls: Do psychological barriers really exist in stock index levels?

Sam Alan Woodhouse, Harminder Singh, Sukanto Bhattacharya, Kuldeep Kumar

Research output: Contribution to journalArticleResearchpeer-review

7 Citations (Scopus)

Abstract

We investigate whether the levels of a stock market index contain any evidence of a behavioural bias depending on the proximity of the index level to 'psychological barriers'. These are certain index levels (usually in multiples of 100) at which the market tends to stick before breaking out either up or down. Extant behavioural finance literature has attributed this to investors' subjective perception of 'something special' about certain index levels where in fact no rational economic basis exists for such a perception. We carry out an empirical analysis of the NASDAQ Composite index and find that barrier effects are indeed present in that stock index. We employ simulation analysis to validate of our obtained results.

Original languageEnglish
Pages (from-to)267-278
Number of pages12
JournalNorth American Journal of Economics and Finance
Volume36
DOIs
Publication statusPublished - 1 Apr 2016

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Psychological barriers
Stock index
Behavioral biases
Economic base
Composite index
Simulation analysis
Investors
Stock market index
Behavioral finance
Empirical analysis
Proximity

Cite this

Woodhouse, Sam Alan ; Singh, Harminder ; Bhattacharya, Sukanto ; Kumar, Kuldeep. / Invisible walls: Do psychological barriers really exist in stock index levels?. In: North American Journal of Economics and Finance. 2016 ; Vol. 36. pp. 267-278.
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Invisible walls: Do psychological barriers really exist in stock index levels? / Woodhouse, Sam Alan; Singh, Harminder; Bhattacharya, Sukanto; Kumar, Kuldeep.

In: North American Journal of Economics and Finance, Vol. 36, 01.04.2016, p. 267-278.

Research output: Contribution to journalArticleResearchpeer-review

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