Title

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

Date of this Version

4-2016

Document Type

Journal Article

Publication Details

Citation only

Woodhouse, S.A., Singh, H., Bhattacharya, S., & Kumar, K. (2016). Invisible walls: Do psychological barriers really exist in stock index levels? North American Journal of Economics and Finance, 36, 267 - 278.

Access the journal

© Copyright, Elsevier, 2016

ISSN

1062-9408

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.

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This document has been peer reviewed.