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Article
Invisible walls: Do psychological barriers really exist in stock index levels?
The North American Journal of Economics and Finance
  • Sam Alan Woodhouse, Deakin University, Australia
  • Harminder Singh, Deakin University
  • Sukanto Bhattacharya, Deakin University, Australia
  • Kuldeep Kumar, Bond University
Date of this Version
4-1-2016
Document Type
Journal Article
Publication Details

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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.

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© Copyright, Elsevier, 2016

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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.
Citation Information
Sam Alan Woodhouse, Harminder Singh, Sukanto Bhattacharya and Kuldeep Kumar. "Invisible walls: Do psychological barriers really exist in stock index levels?" The North American Journal of Economics and Finance Vol. 36 (2016) p. 367 - 278 ISSN: 1062-9408
Available at: http://works.bepress.com/kuldeep_kumar/63/