Examining the Convergent Model and Signaling Chains of Monetary Illusion in Stock Price Movements: An Investors' Sentiment Nudge Approach

Document Type : Research Paper

Authors

1 Ph.D. Candidate, Department of Accounting and Finance, Sanandaj Branch, Islamic Azad University, Sanandaj, Iran.

2 Assistant Prof., Department of Accounting and Finance, Kangavar Branch, Islamic Azad University, Kermanshah, Iran.

3 Assistant Prof, Department of Accounting and Finance, Sanandaj Branch, Islamic Azad University, Sanandaj, Iran.

4 Assistant Prof., Department of Psychology, Kangavar Branch, Islamic Azad University, Kermanshah, Iran.

10.22059/frj.2025.379873.1007625

Abstract

Objective
A comprehensive and integrated model of herd behavior can generalize the phenomenon of monetary illusion across convergent signaling channels associated with the movement variable. Given the two competing hypotheses of investors' cognitive and sentiment biases, the main issue is to use the inductive approach of nudge theory, which will provide a convergent model based on two expected and unexpected states in continuous probability functions of consumption and profit and loss prospects. Separating the inner and outer layers of the converging chains, empirical analyses provide further insights into how the signal chains can explain significant differences in the monetary inflation channels of the stock and foreign exchange markets, as well as a unique signal, and can be identified in bimodal convergent functions. The objective of the article is to develop and empirically test a comprehensive herd-behavior model that explains monetary illusion and market dynamics through cognitive and sentiment biases using a nudge-theory framework across stock and foreign exchange markets.
 
Methods
To simultaneously present data collection models, bivariate analyses, and factor analyses, the methodology is explained in a meta-composite model based on the inductive approach of the nudge theory. Using the DFT algorithm technique, regression matrices of discrete probability functions according to Hausman's theory (2005) have been developed in the framework of hypotheses. The data collection model is based on the Delphi-fuzzy method and the main theories of money illusion, which were obtained in the Tehran stock exchange market from the beginning of 2016 to the beginning of 2020. The data are related to linear and nonlinear fluctuations of the momentum index, stock market trading volume, individual trading volume, and the foreign exchange market, and have been used for selective coding of zero and one of Strauss and Corbin's (1988) theory.
 
Results
The findings indicate a significant and simultaneous relationship between the main and secondary hypotheses of the monetary illusion phenomenon in expected and unexpected situations, which is due to investors' perception of inflation risk in the structural equation model of bivariate analyses. Factor analyses show the one-sided herd behavior of the two-sided signal chains of the currency markets and the unique signals of individuals who will exit the stock market in an unexpected situation. While in the expected situation of individuals, the two-sided convergences will be at the most optimal symmetrical points of the total transactions of individuals and legal entities in the outer and inner layers.
 
Conclusion
Nudge theory can serve as a linking framework between herd behavior and monetary illusion. Using a deductive approach, it helps identify the structural factors that shape individuals’ risk perceptions and allows investor sentiment patterns to be expanded and generalized within the framework of Kahneman and Tversky’s (1979) prospect theory, particularly in economies experiencing chronic inflation. Through data collection, structural equation modeling, and factor analysis, this approach integrates optimal responses derived from foundational theories into a meta-synthesis model. It has been applied to distinguish convergent signal chains in the form of bimodal functions, which can identify channels through which monetary inflation signals are tracked in one-way and two-way movements of symmetric and asymmetric behavioral flows.
 

Keywords

Main Subjects

References

 
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Financial Research Journal
Volume 28, Issue 2
2026
Pages 527-557

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