About the fear of reputational loss: Social trading and the disposition effect

Pelster, Matthias; Hofmann, Annette

doi:10.1016/j.jbankfin.2018.07.003

Cited by 61 publications

(23 citation statements)

References 30 publications

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“…Hence, our result confirms the impact of the frame on the disposition effect, which is in line with Liêu and Pelster (2020b). Additionally, this high disposition effect complements prior studies, which indicates the impact of social interaction on the disposition effect (Lukas et al, 2017;Pelster & Hofmann, 2018). Thus, we focus on differences in the trading and auction behavior of investor groups.…”

Section: Summary Statisticssupporting

confidence: 54%

“…This should reveal important information about influencing factors that play a role in financial decision making and preference construction. Satisfying admiration-seeking behavior instead of maximizing returns could therefore lead to different market behaviors of investors, especially in social trading settings, which have gained increasing popularity (Oehler et al, 2016;Pelster & Hofmann, 2018). This understanding could lead to a stronger link of character assessments to trading activities and result in different regulatory approaches to protect investors from behavioral biases.…”

Section: Discussionmentioning

confidence: 99%

“…individuals show a higher disposition effect in a social setting, which could indicate admiration-seeking behavior (see Pelster and Hofmann (2018) for a similar argument).…”

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confidence: 88%

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The disposition effect and admiration seeking

Max

Liêu

2021

Rev Financ Econ

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This paper examines the relationship between the disposition effect and personality traits and aims to find an additional explanation of this bias in a willingness to pay for admiration. We conduct a personality assessment, a stock trading game and a sealed‐bid English auction for 84 individual investors. The gathered data correspond with the literature on a descriptive level; however, even though admiration‐seeking behavior is an important part of social interaction, there is no significant willingness to pay for it. Furthermore, we do not see any influence of personality on the disposition effect. Our findings add to the ongoing discussion of personality traits in connection with behavioral biases.

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Section: Summary Statisticssupporting

confidence: 54%

Section: Discussionmentioning

confidence: 99%

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The disposition effect and admiration seeking

Max

Liêu

2021

Rev Financ Econ

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“…The disposition effect is the propensity of investors to refrain from realized loss in expectations of realized gains (Pelster & Hofmann, 2018). The disposition effect estimated as the difference between the fraction of realized gains and the fraction of realized losses (Odean, 1999); (Odean, Strahilevitz, & Barber, 2010).…”

Section: Disposition Effectmentioning

confidence: 99%

An Analysis of Behavioral Biases in Investment Decision-Making

Madaan¹,

Singh²

2019

IJFR

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Individual investor’s behavior is extensively influenced by various biases that highlighted in the growing discipline of behavior finance. Therefore, this study is also one of another effort to assess the impact of behavioral biases in investment decision-making in National Stock Exchange. A questionnaire is designed and through survey responses collected from 243 investors. The present research has applied inferential statistics and descriptive statistics. In the existing study, four behavioral biases have been reviewed namely, overconfidence, anchoring, disposition effect and herding behavior. The results show that overconfidence and herding bias have significant positive impact on investment decision. Overall results conclude that individual investors have limited knowledge and more prone towards making psychological errors. The findings of the study also indicate the existence of these four behavioral biases on individual investment decisions. This study will be helpful to financial intermediaries to advice their clients. Further, study can be elaborated to study other behavioral biases on investment decisions.

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“…There are social trading platforms like Zulutrade that primarily offer foreign exchange trading (Glaser and Risius 2018;Schneider and Oehler 2021) and thus cannot be employed to examine signal provider stock gambling. Other major social trading platforms like ayondo and eToro offer trading via Contracts for Difference (CFD) which in turn may be vastly levered (Berger et al 2018;Dorfleitner et al 2018;Pelster and Hofmann 2018). Hence, on platforms where every asset can be levered, it is unlikely that signal providers choose stocks to generate lottery-like payoffs, i.e.…”

Section: Introductionmentioning

confidence: 99%

Social trading: do signal providers trigger gambling?

Oehler

Schneider

2022

Rev Manag Sci

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Social trading—also referred to as copy trading—is an interactive platform-based innovation facilitating visibility and traceability of signal provider trading activities. Based on published portfolio transaction and return track records, platform users can copy one or several signal providers, i.e. delegate their investment decisions, and thereby become signal followers. Allowing signal providers to administer purely virtual portfolios, in combination with a remuneration scheme based on performance fees and high watermarks, creates convex or option-like incentives (Carpenter, J Finance 55:2311–2331, 2000; Doering and Jonen, SSRN J, 2018). We argue that the incentive structure imposed by social trading providers, including a very limited monetary downside risk for signal providers, may motivate traders to gamble. In this context, we assess the factors that have an impact on signal provider lottery-like stock transactions (Bali et al., J Financ Econ 99:427–446, 2011; Kumar, J Finance 64:1889–1933, 2009). We provide empirical evidence that signal providers tend to increase the traded relative share of lottery-like stocks when being located at an extreme end of the relative performance spectrum. Furthermore, we provide evidence that underperforming signal providers increase their net exposure towards lottery-like stocks, in turn exposing signal followers to a lottery-like return structure—triggering gambling.

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About the fear of reputational loss: Social trading and the disposition effect

Cited by 61 publications

References 30 publications

The disposition effect and admiration seeking

The disposition effect and admiration seeking

An Analysis of Behavioral Biases in Investment Decision-Making

Social trading: do signal providers trigger gambling?

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