Psychological Barriers in the Financial Markets : An Application in Borsa İstanbul

In traditional finance theory, the efficient market hypothesis suggests that investors can not make any abnormal returns given the same amount of risk. Investor rationality has always been a topic studied in behavioral finance, as there are many anomalies in the stok market caused by investor irrationality. The existence of psychological barriers is related to the belief in the predictability of stock price and contradictive to both market efficiency hypothesis and the assumption of rational investors. In this point of view, studies which find evidence for existence of psychological barriers contribute to the literature on market anomalies. The effect of pscyhological barriers can be explained by an anchoring effect. Furthermore, these barriers are often associated with support and resistance levels and with a bandwagon effect. But the existence of psychological barriers in financial markets is a relatively undocumented anomaly. Also there is no prior academic research on psychological barriers on Borsa İstanbul.

This study investigates whether psychological barriers exist in a Turkey Stock Exchange and major Turkish stocks. Therefore two Stock Index and the daily closing price of ten stocks are examined with respect to the price clustering around the barrier and also return and volatility. Generally two different statistical analysis have been used in studies of the uniformity of digits: the chi-square and dummy regression analysis. A third approach uses GARCH analysis to assess the differential impact of being above or below a barrier. In this study both these statistical method and GJR-GARCH analysis is used to test of barriers existence.

According to chi-square test and dummy regression results, there is strong evidence for the existence of systematic behavior at the BIST 30 index at the 10000s barier level. The frequencies within the barrier band are significantly lower then frequencies outside the barrier band. But for most of the examined stock there is strong evidence in the opposite direction: higher frequencies inside the barrier band and lower frequencies outside. According to GJR-GARCH results, there is no significant difference in the conditional mean for the periods immediately before and immediately after an upward and downward crossing a supposed barrier. But, there is significant difference in the conditional variance for the periods immediately before and immeditely after an upward and downward crossing of a supposed barrier. 

Sümeyra Gazel / Erciyes University, Institute of Social Sciences / Ph.D. Thesis, 2013