Competition for visibility: When do (FX) signal providers employ lotteries?

Schneider, Julian; Oehler, Andreas

doi:10.1016/j.irfa.2021.101892

Cited by 7 publications

(7 citation statements)

References 61 publications

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“…Our results indicate that signal providers tend to increase the traded relative share of lottery-like stocks within an administered wikifolio when being placed at one of the extreme ends of the relative performance spectrum. These results are in line with Schneider and Oehler (2021), who report a similar pattern for traded currency pairs which exhibit extreme past daily returns. Furthermore, we provide empirical evidence that signal providers administering wikifolios with more moderate peer performance are more likely to trade nonlottery stocks, i.e.…”

Section: Introductionsupporting

confidence: 92%

“…These results are not particularly surprising. Schneider and Oehler (2021) report a similar pattern for traded currency pairs which exhibit extreme past daily returns.…”

Section: Transactions Lottery-like Stocksmentioning

confidence: 55%

“…8 Pelster and Breitmayer (2019) relate social trading to research on private investor (stock) trading driven by excitement (Dorn and Sengmueller 2009;Taffler 2018) as well as the desire to gamble (Dorn et al 2015;Gao and Lin 2015;Kumar 2009). Using a social trading framework, Schneider and Oehler (2021) study gambling behavior with currency pairs. In the context of this paper, we are the first to our knowledge to explicitly combine research on social trading and stock gambling.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Furthermore, portfolios with good past performance are placed at the top of the platforms' selection lists and thus generate attention 2 -the increased attention leading to higher inflows and, in consequence, a continued eligibility for remuneration (Röder and Walter 2019). On the other hand, a failing portfolio barely bears any (monetary) consequences for the signal provider (Schneider and Oehler 2021).…”

Section: Introductionmentioning

confidence: 99%

“…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).…”

Section: Introductionmentioning

confidence: 99%

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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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Section: Introductionsupporting

confidence: 92%

“…These results are not particularly surprising. Schneider and Oehler (2021) report a similar pattern for traded currency pairs which exhibit extreme past daily returns.…”

Section: Transactions Lottery-like Stocksmentioning

confidence: 55%