IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/621.html
   My bibliography  Save this paper

Psychological Barriers in the Foreign Exchange Market

Author

Listed:
  • De Grauwe, Paul
  • Decupere, Danny

Abstract

This paper undertakes an empirical analysis of the existence of psychological barriers in the dollar/DM and the dollar/yen exchange markets. Psychological barriers occur when agents attach some special importance to the last trailing digits of the price of an asset or a currency. Our empirical results indicate that psychological barriers exist and are significant in the dollar-yen market. Market exchange rates tend to resist movements towards numbers such as 130, 140, ... yen per dollar etc. In addition, once these barriers have been crossed, exchange rates accelerate away from them. The evidence of psychological barriers in the dollar/DM market is less clear-cut.

Suggested Citation

  • De Grauwe, Paul & Decupere, Danny, 1992. "Psychological Barriers in the Foreign Exchange Market," CEPR Discussion Papers 621, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:621
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=621
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
    2. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
    3. Patrick Rey & Jean Tirole, 1985. "The Logic of Vertical Restraints," Working papers 396, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
    5. Maskin, Eric S & Newbery, David M, 1990. "Disadvantageous Oil Tariffs and Dynamic Consistency," American Economic Review, American Economic Association, pages 143-156.
    6. Grosfeld, Irena & Hare, Paul G, 1991. "Privatization in Hungary, Poland and Czechoslovakia," CEPR Discussion Papers 544, C.E.P.R. Discussion Papers.
    7. Rey, Patrick & Tirole, Jean, 1986. "The Logic of Vertical Restraints," American Economic Review, American Economic Association, pages 921-939.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pierdzioch, Christian, 2000. "Noise Traders? Trigger Rates, FX Options, and Smiles," Kiel Working Papers 970, Kiel Institute for the World Economy (IfW).
    2. Lukas Menkhoff & Mark P. Taylor, 2007. "The Obstinate Passion of Foreign Exchange Professionals: Technical Analysis," Journal of Economic Literature, American Economic Association, pages 936-972.
    3. Carrera, César, 2015. "Tracking exchange rate management in Latin America," Review of Financial Economics, Elsevier, vol. 25(C), pages 35-41.
    4. L. Menkhoff & M. Schlumberger, 1995. "Persistent profitability of technical analysis on foreign exchange markets?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 48(193), pages 189-215.
    5. 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, pages 263-279.
    6. 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.
    7. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    8. Hélène Tordjman, 1997. "Spéculation, hétérogénéité des agents et apprentissage : un modèle de "marché des changes artificiel"," Revue Économique, Programme National Persée, vol. 48(4), pages 869-897.
    9. Brown, Philip & Mitchell, Jason, 2008. "Culture and stock price clustering: Evidence from The Peoples' Republic of China," Pacific-Basin Finance Journal, Elsevier, pages 95-120.
    10. Carol L. Osler, 2001. "Currency orders and exchange-rate dynamics: explaining the success of technical analysis," Staff Reports 125, Federal Reserve Bank of New York.
    11. Narayan, Paresh Kumar & Narayan, Seema & Popp, Stephan, 2011. "Investigating price clustering in the oil futures market," Applied Energy, Elsevier, pages 397-402.
    12. Carol L. Osler, 2003. "Currency Orders and Exchange Rate Dynamics: An Explanation for the Predictive Success of Technical Analysis," Journal of Finance, American Finance Association, vol. 58(5), pages 1791-1820, October.
    13. Mitchell, Jason & Izan, H.Y., 2006. "Clustering and psychological barriers in exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(4), pages 318-344, October.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:621. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.