 Price Clustering and Natural Resistance Points in the Dutch Stock MarketNo 03-043/1, Tinbergen Institute Discussion Papers from Tinbergen Institute Abstract: This discussion paper resulted in an article in the 'European Economic Review' (2006). Volume 50, issue 8, pages 1937-1950. The main contribution of this study is the finding that round numbers can act aspricebarriers for individual stocks. In addition, a first step is made to explain this and therelated phenomena of round number clustering by testing two competing hypotheses,using data from the Dutch stock market during 1990-2001. After January 1, 1999stock prices were listed in euros, while guilders were still the currency of daily lifeuntil 2002. According to the aspiration level hypothesis investors will have targetprices for the stocks they own. This hypothesis predicts that round number effects inguilders will only slowly disappear. The odd price hypothesis originates fromcognitive psychology and marketing. Humans have to tendency to compare numbersdigit by digit from left to right, and therefore consider an odd price of 19.90 asconsiderable less than 20.00. This hypothesis predicts an abrupt change in roundnumber effects after January 1, 1999. The results reject the aspiration level hypothesisand are in line with the odd price hypothesis. Keywords: behavioral finance; natural experiment; price clustering. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20030043 Access Statistics for this paper More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.