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Price Barriers in the Dow Jones Industrial Average

Published online by Cambridge University Press:  06 April 2009

R. Glen Donaldson  and
Harold Y. Kim
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Abstract

This study tests the popular claim that the DJIA's movements around key reference points affect “investor sentiment” and thus price behavior. It is found that the DJIA's rise and fall is indeed restrained by “support” and “resistance” levels at multiples of 100 (e.g., 2800, 2900, 3000, etc.) but that, having broken through a 100-level, the DJIA then moves by more than otherwise warranted. A Monte Carlo study and comparisons with other indices confirm the significance of these findings. This suggests that some agents may trade on the basis of the DJIA but does not necessarily suggest that the market is inefficient.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 28 , Issue 3 , September 1993 , pp. 313 - 330
Copyright
Copyright © School of Business Administration, University of Washington 1993

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