Looking for Psychological Barriers in nine European Stock Market Indices

Júlio Lobão 1 * , Cristiano Pereira 1 *

Dutch Journal of Finance and Management, Volume 1, Issue 1, Article No: 39.

https://doi.org/10.20897/lectito.201639

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Abstract

In this paper we examine nine European stock market indices for indication of psychological barriers at round numbers. We test for uniformity in the trailing digits of the indices and use regression and GARCH analysis to assess the differential impact of being above or below a possible barrier. Despite having rejected uniformity for all data series, we only found significant psychological barriers in the stock markets of Germany, Finland and the Netherlands. Moreover, we document that the relationship between risk and return tends to be weaker at the proximity of round numbers which poses a challenge to the traditional equilibrium models.

Keywords

psychological barriers, M-values, stock market indices, market psychology, round numbers

Citation

Lobão, J., and Pereira, C. (2016). Looking for Psychological Barriers in nine European Stock Market Indices. Dutch Journal of Finance and Management, 1(1), 39. https://doi.org/10.20897/lectito.201639

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