On the hypothesis of psychological barriers in stock markets and Benford's Law

Ceuster, Marc J.K. De; Dhaene, Geert; Schatteman, Tom

doi:10.1016/s0927-5398(97)00024-8

Cited by 62 publications

(32 citation statements)

References 10 publications

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“…Mitchell (2001) argues that any such relationships are (i) restricted to certain data series; (ii) depends on the place digit and (iii) are influenced by the way in which the analysis is conducted and how the clustering is specified, e.g., whether it is relative to a floating or fixed digit place format. The above conclusion is contrary to De Grauwe and Decupere (1992), Ley (1996) andDe Ceuster et al (1998) who suggest Benford's law describes many data series, including financial data, so that widespread clustering simply due to the form of the number itself is possible.…”

Section: Reasons For Clustering And/or Psychological Barrierscontrasting

confidence: 63%

Clustering and psychological barriers in exchange rates

Mitchell

Izan

2006

Journal of International Financial Markets, Institutions and Mo

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Section: Reasons For Clustering And/or Psychological Barrierscontrasting

confidence: 63%

Clustering and psychological barriers in exchange rates

Mitchell

Izan

2006

Journal of International Financial Markets, Institutions and Mo

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“…Inter alia, they find that sequences of trading days not fulfilling the Benford distribution are rather short. Huge deviations from Benford's Law are often interpreted as signals of some type of irregularity, like psychological price barriers or price collusions (DeCeuster, Dhaene, & Schatteman, 1998;Giles, 2007). However, the literature also shares the common result that we rarely find a perfect match of the observed FSDs to Benford's Law.…”

Section: Benford's Law Benford-like Distributions and The Cds Marketmentioning

confidence: 68%

First Significant Digits and the Credit Derivative Market During the Financial Crisis

Hofmarcher

Hornik

2013

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Vizja Press&IT www.ce.vizja.pl 21The Credit Default Swap (CDS) market has both been lauded for its ability to stabilize the financial system through credit risk transfers and been the source of regulatory concern due to its size and lack of transparency. As a decentralized over-the-counter market, detailed information about pricing mechanisms is rather scarce. To investigate reported CDS prices (spreads) more closely, we make use of empirical First Significant Digit (FSD) distributions and analyze daily CDS prices for European and US entities during the financial crisis starting in 2007. We find that on a timeaggregated level, the European and US markets obey empirical FSD distributions similar to the theoretical ones. Surprising differences are observed in the development of the FSD distributions between the US and European markets. Whereas the FSD distribution of the US derivative market behaves nearly constantly during the last financial crisis, we find huge fluctuations in the FSD distribution of the European market. One reason for these differences might be the possibility of strategic default for US companies due to Chapter 11 and avoided contagion effects. IntroductionThe financial markets and the world economy as a whole are currently beset by huge uncertainty. What was sparked by a decrease of housing prices in the US eventually led to a near collapse of the global credit markets. In this article, we use empirical first significant digits (FSD) and theoretical Benford-like distributions (Benford, 1938;Grendar, Judge, & Schechter, 2007) to study the credit default swap (CDS) market during the financial crisis, which started in July 2007.The reason we choose the CDS market as representative of the credit market is twofold: First, before the crisis, the CDS market was often lauded as an overthe-counter (OTC) market with prodigious risktransferring ability, which stabilizes the financial system as a whole (Greenspan, 2005). Second, from being a fledgling market in the mid-nineties, the CDS market has grown tremendously over the last decade

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“…Later, Ceuster et al (1998) claimed that this definition was too narrow because the series was not multiplicatively regenerative, resulting, for instance, in 3400 being considered a barrier, whereas 340 would not be. Additionally, the authors claimed that, as defined by Eq.…”

Section: M-valuesmentioning

confidence: 99%

“…Ley and Varian (1994) showed that the last digits of the Dow Jones Industrial Average were in fact not uniformly distributed and even appeared to exhibit certain patterns, but the returns conditional on the digit realization were still significantly random. Additionally, Ceuster et al (1998) noted that as a series grows without limit and the intervals between barriers become wider, the theoretical distribution of digits and the respective frequency of occurrence are no longer uniform.…”

Section: Uniformity Testmentioning

confidence: 99%

Psychological Barriers in Single Stock Prices: Evidence from Three Emerging Markets

Lobão

Fernandes

2018

RBGN

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Purpose -The purpose of the study is to examine the prices of some of the most widely traded stocks from Taiwan, Brazil and South Africa for indications of psychological barriers at round numbers.Design/methodology/approach -The sample under study includes a group of 24 stocks (8 for each one the emerging markets) during the period 2000-2014. We test for uniformity in the trailing digits of the stock prices and use regression and GARCH analysis to assess the differential impact of being above or below a possible barrier.Findings -We found no consistent psychological barriers in individual stock prices near round numbers. Moreover, we document that the relationship between risk and return tends to be weaker in the proximity of round numbers for about half of the stocks under study.Originality/value -This is the first study to examine the prices of single stocks from emerging markets for indications of psychological barriers at round numbers. Our results advocate special reflection regarding trading strategies linked to support and resistance levels in stock prices.

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On the hypothesis of psychological barriers in stock markets and Benford's Law

Cited by 62 publications

References 10 publications

Clustering and psychological barriers in exchange rates

Clustering and psychological barriers in exchange rates

First Significant Digits and the Credit Derivative Market During the Financial Crisis

Psychological Barriers in Single Stock Prices: Evidence from Three Emerging Markets

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