Cuadernos de Economía

ISSN : 0210-0266

Psychological barriers in stock market indices: Evidence from four southern European countries

  • Júlio Lobãoa, Cristiano Pereira ,


In this paper we examine, for the first time, the major stock market indices of Greece, Italy, Portugal, and Spain for indication of psychological barriers at round numbers. Uniformity in the trailing digits of the indices was tested, and regression and GARCH analysis
was used to assess the differential impact of being above or below a possible barrier. No evidence of psychological barriers was detected in the Italian stock market. There was weak evidence of barriers in the Iberian stock markets, and a strong indication of psychological barriers in the Greek stock market. Moreover, it is shown here that the relationship between risk and return tends to be weaker at the proximity of round numbers, which poses a challenge to the traditional equilibrium models.