Effects of Transparency: Analyzing Social Biases on Trader Performance in Social Trading
Authors: Glaser, Florian; Risius, Marten
Journal: Journal of Information Technology (2018)
DOI: 10.1057/s41265-016-0028-0
<jats:p>Social Trading platforms combine the trading functionalities of classical online broker services with the communication and interaction features of social networks. Next to following other users’ profiles, a main characteristic of social trading platforms is the possibility to follow other users by automatically copying their trades. By being a technologically based financial intermediary that enables individual profit maximization, social trading platforms constitute a contemporary example of financialization. Our empirical analysis of the behavior of traders on a social trading platform provides new insights on financialization related questions regarding the influence of transparency and interaction in delegated investment environments. The disposition effect is a well-studied behavioral bias of investors and traders. Human investors tend to realize returns of their winning positions too early and let unfavorable positions accumulate losses for too long. We find that on social trading platforms the traders’ sensitivity to the disposition effect is influenced by the amount of attention they receive from their followers who invested capital into the traders’ strategy. The…