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

Lobão, Júlio; Fernandes, João

doi:10.7819/rbgn.v20i2.3049

Cited by 4 publications

(6 citation statements)

References 21 publications

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“…The Taiwanese index and the Indonesian index exhibited some signs of psychological barriers. Lobão and Fernandes (2018) found no consistent psychological barriers in individual stock prices near round numbers in the markets of Taiwan, Brazil and South Africa in the period 2000-2014. The authors also documented that the relationship between risk and return tended to be weaker in the proximity of round numbers for about half of the stocks under study.…”

Section: Previous Empirical Studiesmentioning

confidence: 84%

“…Shawn and Kalaichelvan (2012) examined five indices (ATX, CAC, DAX, FTSE, SMI) in the period 2001-2011, having found evidence for barriers in only one index (SMI) at the 1,000-level but no significant evidence of barriers at the 100 and 1,000 levels in the other indices. Bahng (2003) and Lobão and Fernandes (2018) carried out two of the few studies regarding the existence of psychological barriers in emerging stock markets. Bahng (2003) conducted the first study about the topic on Asian stock markets, using the daily prices of seven indices (South Korea, Taiwan, Hong Kong, Thailand, Malaysia, Singapore and Indonesia) from the beginning of 1990 to the end of 1999.…”

Section: Previous Empirical Studiesmentioning

confidence: 99%

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Psychological barriers in the cryptocurrency market

Fonseca

Pacheco

Lobão

2019

RBF

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Purpose The purpose of this paper is to study the existence of psychological barriers in cryptocurrencies. Design/methodology/approach To detect psychological barriers, the authors perform a uniformity test, a barrier hump test, a barrier proximity test and conditional effects test to a sample comprised by the daily closing quotes of six of the most liquid cryptocurrencies. Findings The results evidence the existence of psychological barriers in four of the cryptocurrencies under scrutiny, namely, Bitcoin, Dash, NEM and Ripple. Practical implications The fact that the cryptocurrency market has a high share of unexperienced investors and presents several cases of psychological barriers is consistent with the hypothesis that that class of investors is particularly prone to the behavioral biases which cause psychological barriers. Originality/value This paper studies, for the first time, the existence of psychological barriers in the market of cryptocurrencies.

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Section: Previous Empirical Studiesmentioning

confidence: 84%

Section: Previous Empirical Studiesmentioning

confidence: 99%

Psychological barriers in the cryptocurrency market

Fonseca

Pacheco

Lobão

2019

RBF

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“…The absence of psychological barriers is consistent with a highly informationally efficient market. With their presence detected, with a market dominated by noise traders (Lobão and Fernandes, 2017), where prices may be dictated by complex patterns of shifting fads and moods. It is not possible to make comparisons with the results of other authors, as this analysis applies to a specific market that has not been studied in the literature.…”

Section: Rbf 135mentioning

confidence: 99%

Psychological barriers in the electric market: study applied to the Nord Pool market

Almeida

Madaleno

Robaina

2020

RBF

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PurposeThis article aims to verify if there are detectable barriers in price levels that are understood to be psychologically important (psychological barriers) in a set of hourly electricity prices. These barriers manifest themselves when the market struggles with a difficulty in crossing the barrier to a different level. Psychological barriers focus on directional price movements around regions of the barrier, thus the importance of understanding investor behavior. The authors intend to contribute empirically to the scarce literature on psychological influences in individuals trading in the energy market, hereby enhancing the knowledge concerning the behavior of investors in this market.Design/methodology/approachThe present work aims to test psychological barriers in the Nord Pool electricity market. Through a sample of hourly data on the Elspot day-ahead market, from 2013 to 2017, three groups of tests were made, following the M-values methodology: (1) uniformity tests, which clearly rejected the uniformity in hourly prices; (2) barrier tests, which included the barrier proximity and barrier hump tests, evidencing psychological barriers and (3) conditional effects tests, which allowed us to conclude in favor of effects of positive returns after approaching a barrier on an upward movement, i.e. the barrier breaches due to the fact that increasing prices tend to lead to further price increases, on average.FindingsUniformity tests, rejected the uniformity in hourly prices; barrier tests, included the barrier proximity and barrier hump tests, evidencing psychological barriers and conditional effects tests, allowed us to conclude in favor of effects of positive returns after approaching a barrier on an upward movement, i.e. the barrier breaches due to the fact that increasing prices tend to lead to further price increases, on average. Another relevant conclusion is that the period from midnight to 9 a.m. is very sensitive, since there is evidence of return and variance effects simultaneously. The implications of these results are potentially relevant, since changes on the variance are usually perceived as a proxy for risk, with changes on the return. It was also concluded that with the increase of the time span from 5 to 10 days on the conditional effects difference tests, there were significant changes on the results, the variance effect is stronger, while the return effect weakens.Research limitations/implicationsHowever, this research presents some limitations that result in representing opportunities for future research. The fact that there are reduced data available for other markets end up limiting the study of the global electricity market. Although Nord Pool is Europe's leading energy market and is seen as one of the most successful energy markets in the world, it would be interesting to do a study with more than one electricity market to make comparative considerations. Although the spot market is the main arena for energy trade, while the intraday market works as a compliment, it would be equally interesting to do a similar study for the intraday market and then compare conclusions. Moreover, in the present study, it was used standard methods in the literature on psychological barriers, but other methods could have been used–for example, those that assume that prices follow the Benford's distribution (Lu and Giles, 2010), which also present a path for future research and opportunity for confirming the robustness of the present results.Practical implicationsWhen the presence of psychological barriers is detected it means that the risk-return relationship becomes weaker around the psychological barrier (round numbers, meaning that electricity traders anchor). Identification of psychological barriers supports the claim that technical analysis strategies based on price support and resistance can be profitable. Therefore, more profitable strategies can be built by traders, but no reconciliation with the efficient market hypothesis (EMH) (provided that in inefficient markets prices should not exhibit any particular pattern). The finding of significant psychological barriers in specific hourly time intervals implies the need to address its practical implications in electricity markets, being so specific, namely, the possibility to earn extraordinarily profits exploiting this anomaly and who wins.Originality/valueThe electricity sector is a determinant sector in economic growth and a factor of development. Herein lies the importance of studying this market, which until now has not occurred in this subject, as far as it was possible to gauge. Are there barriers in the electricity market and should such a presence be taken into account? Investigating the existence of psychological barriers in the electric market becomes relevant, because knowing that investors are psychologically affected by a psychological barrier, can become a useful tool in negotiation, as it can function as another variable in the “equation” which is to trade in a complex market like this. Proving the potential presence of a psychological barrier may lead investors to believe in the idea of levels of resistance or levels of support, affecting their decision-making and price dynamics.

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“…More recently, Berk et al (2017) and Lobão and Fernandes (2018) conducted studies on individual stock prices and found conflicting results. Berk et al (2017) examined the prices of 77 individual stocks belonging to 15 frontier equity markets, i.e., markets that are not developed enough to be considered as "emerging".…”

Section: Previous Findingsmentioning

confidence: 99%

Are there Psychological Barriers in Asian Stock Markets?

Lobão¹,

Couto²

2019

AAMJAF

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We examine six major Asian stock markets for indication of psychological barriers at round numbers. We test for uniformity in the trailing digits of the indices and use regression and generalized autoregressive conditional heteroskedasticity (GARCH) analysis to assess the differential impact of being above or below a possible barrier. The strongest indication of barriers was found in the markets of South Korea and Taiwan. There is mild evidence of barriers in Japan and Hong Kong and the stock markets of Singapore and China exhibit only weak signs of psychological barriers. These findings challenge the notion that Asian markets are efficient and support the claim that technical analysis strategies can be useful in some of these markets.

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

Cited by 4 publications

References 21 publications

Psychological barriers in the cryptocurrency market

Psychological barriers in the cryptocurrency market

Psychological barriers in the electric market: study applied to the Nord Pool market

Are there Psychological Barriers in Asian Stock Markets?

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