Do psychological barriers exist in the stock price indices?: evidence from Asia's emerging markets

Abstract

This paper tests whether psychological barriers exist in the price levels of stock indices. Using the data from Asia's emerging markets and statistical techniques such as regression and bootstrapping, this study analyzes barrier effects around psychologically important reference levels. The results indicated the existence of a price barrier in the Taiwanese stock index. Other markets, however, do not seem to possess the effect of a selected reference point. The case of Taiwan is interpreted as evidence of a violation of market efficiency in the sense that price level occurrences and their distribution should be random, as in efficient markets. This research contributed to behavioral corporate finance by applying investor psychology and its effect on stock price levels.