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Psychological barriers in European stock markets: Where are they?

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  • Dorfleitner, Gregor
  • Klein, Christian
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    Abstract

    We examine four European stock indices and the prices of eight major German stocks for indications of psychological barriers. The frequency, (expected) returns, intraday volatility and trading volume of these assets are studied contingent on whether the prices lie within a certain range around round numbers. Our results indicate that psychological barriers do not exist on a consistent basis. It seems that some barriers have disappeared after these anomalies have been published. This discovery is consistent with current literature findings about disappearing stock market anomalies.

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    Bibliographic Info

    Article provided by Elsevier in its journal Global Finance Journal.

    Volume (Year): 19 (2009)
    Issue (Month): 3 ()
    Pages: 268-285

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    Handle: RePEc:eee:glofin:v:19:y:2009:i:3:p:268-285

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    Web page: http://www.elsevier.com/locate/inca/620162

    Related research

    Keywords: Psychological barriers M-values Benford's law Disappearing anomalies;

    References

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    1. Wessel Marquering & Johan Nisser & Toni Valla, 2006. "Disappearing anomalies: a dynamic analysis of the persistence of anomalies," Applied Financial Economics, Taylor & Francis Journals, vol. 16(4), pages 291-302.
    2. De Ceuster, Marc J. K. & Dhaene, Geert & Schatteman, Tom, 1998. "On the hypothesis of psychological barriers in stock markets and Benford's Law," Journal of Empirical Finance, Elsevier, vol. 5(3), pages 263-279, September.
    3. Brian Lucey & Raj Aggarwal, 2005. "Psychological Barriers in Gold Prices," The Institute for International Integration Studies Discussion Paper Series iiisdp053, IIIS.
    4. Donaldson, R. Glen & Kim, Harold Y., 1993. "Price Barriers in the Dow Jones Industrial Average," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(03), pages 313-330, September.
    5. G. Kohers & N. Kohers & V. Pandey & T. Kohers, 2004. "The disappearing day-of-the-week effect in the world's largest equity markets," Applied Economics Letters, Taylor & Francis Journals, vol. 11(3), pages 167-171.
    6. Koedijk, Kees G. & Stork, Philip A., 1994. "Should we care? psychological barriers in stock markets," Economics Letters, Elsevier, vol. 44(4), pages 427-432, April.
    7. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. " Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-64, December.
    8. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," The Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January.
    9. Cyree, Ken B. & Domian, Dale L. & Louton, David A. & Yobaccio, Elizabeth J., 1999. "Evidence of psychological barriers in the conditional moments of major world stock indices," Review of Financial Economics, Elsevier, vol. 8(1), pages 73-91, June.
    10. Donaldson, R.G., 1990. "Psychological Barriers In Asset Prices, Rationality And The Efficient Market Hypothesis," Papers 114, Princeton, Department of Economics - Financial Research Center.
    11. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
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    Cited by:
    1. Kalaichelvan, Mohandass & Lim Kai Jie, Shawn, 2012. "A Critical Evaluation of the Significance of Round Numbers in European Equity Markets in Light of the Predictions from Benford’s Law," MPRA Paper 40960, University Library of Munich, Germany.

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