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Do psychological barriers exist in Latin American stock markets?

Author

Listed:
  • Júlio Lobão

    (Universidade do Porto - Faculdade de Economia do Porto, Portugal)

  • Natércia Fortuna

    (Universidade do Porto - Faculdade de Economia do Porto, Portugal)

  • Franklin Silva

    (Universidade do Porto - Faculdade de Economia do Porto, Portugal)

Abstract

We examine for the first time the major stock markets of eight Latin American countries 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. The Chilean stock market seems to be significantly different from its counterparts as it is the only one that showed virtually no signs of psychological barriers. There is mild to strong evidence of barriers in the remaining markets. These findings challenge the notion that most Latin American markets are unpredictable and lend credit to the claim that technical analysis strategies can be useful in some of these markets.

Suggested Citation

  • Júlio Lobão & Natércia Fortuna & Franklin Silva, 2020. "Do psychological barriers exist in Latin American stock markets?," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 35(2), pages 29-56, October.
    • Handle: RePEc:ila:anaeco:v:35:y:2020:i:2:p:29-56
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    More about this item

    Keywords

    Latin American markets; psychological barriers; stock market indices; market psychology; round numbers.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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