ABSTRACT
This paper proposes a model to estimate the dynamic psychological anchor and adjustment speed of investors in stock markets. By employing covariate-dependent threshold settings in regression kink models, we identify the changing psychological anchor and how quickly investors adapt to a target level. Analysing stock index data from the G7 and BRIC countries, we find evidence of time-varying psychological anchors in most BRIC countries. Additionally, our results indicate that the BRIC countries exhibit slower adjustment to target anchors compared to the G7 countries.
Acknowledgements
The first author (Lixiong Yang) gratefully acknowledges financial support from the National Natural Science Foundation of China (Grant No. 72273059).
Disclosure statement
No potential conflict of interest was reported by the author(s).
Declaration of Generative AI and AI-assisted technologies in the writing process
Statement: During the preparation of this work the author(s) used ChatGPT4.0 in order to improve the spelling, grammar, clarity, conciseness and overall readability of the text. After using this tool/service, the author(s) reviewed and edited the content as needed and take(s) full responsibility for the content of the publication.
Supplementary material
Supplemental data for this article can be accessed online at https://doi.org/10.1080/13504851.2024.2335369
Notes
1 Articles the effects of psychological anchor (historical or 52-week high) include Chen and Yang (Citation2016); Bhootra (Citation2018) and Ran et al. (Citation2022), to name a few.
2 One may explain the optimality in terms of the utility of a representative investor. A further investigation of this issue is worthwhile, but it will not be pursued in this paper. Furthermore, the proposed methodology can be easily extend to the case with a time-varying ‘optimal’ anchor by setting the target reference as a function of other variables.
3 Please see the last section (Economic Interpretations and Importances) of Online Appendix for more details (pages 6–7).
4 Please see the last section (Economic Interpretations and Importances) of Online Appendix for more details (page 7).