Peer effects and risk sharing in experimental asset markets

Gortner, Paul J.; Weele, Joël van der

doi:10.1016/j.euroecorev.2019.04.001

Cited by 16 publications

(13 citation statements)

References 47 publications

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“…Overall this shows a fairly strong disposition effect (Shefrin and Statman, 1985), as assets are almost never sold at a loss but quickly sold once a small profit is made. 26 Result 9 There is a noticeable disposition effect as subjects hold losers and sell winners prematurely.…”

Section: Resultsmentioning

confidence: 98%

Copy Trading

2020

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Copy trading allows traders in social networks to receive information on the success of other agents in financial markets and to directly copy their trades. Internet platforms like eToro, ZuluTrade, and Tradeo have attracted millions of users in recent years. The present paper studies the implications of copy trading for the risk taking of investors. Implementing a novel experimental financial asset market, we show that providing information on the success of others leads to a significant increase in risk taking of subjects. This increase in risk taking is even larger when subjects are provided with the option to directly copy others. We conclude that copy trading leads to excessive risk taking. This paper was accepted by Axel Ockenfels, decision analysis.

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Section: Resultsmentioning

confidence: 98%

Copy Trading

2020

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“…Influence of the platform-specific rating and incentivizing methodologies Since social trading platforms prominently display the rating of each signaler, trade leaders strive for good positions in the platform's league table in order to attract new investments (Cheng, 2007;Jin et al, 2016;Gortner and van der Weele, 2019). Both platforms under review reinforce this behavior by suggesting the ranking as one of the key investment criterion, with the result that the predefined search for portfolios in the investigation period has been based on levels and Wikifolio points respectively.…”

Section: Theory and Hypothesesmentioning

confidence: 99%

Trading activity on social trading platforms – a behavioral approach*

Dorfleitner

Scheckenbach

2022

JRF

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PurposeSocial trading platforms are considered to be amongst the major innovations in online trading. The purpose of this article is to analyze the trading activity of traders on social trading networks by taking a behavioral approach. Additionally, the authors investigate the factors that influence the irrational part of trading activity derived from the key characteristics of these platforms, i.e. those dealing with social interaction.Design/methodology/approachThe investigation utilizes an extensive set of trading data from two major platforms in Germany to study the trading behavior. The authors apply a fixed effects two-stage least squares (2SLS) approach to quantify the relationship between trading activity and performance and define overconfidence as the part of trading activity that is irrationally motivated and results in negative returns.FindingsThe results provide evidence for the negative relationship between overconfidence and return on social trading platforms. The authors find that the number of followers and some platform-specific features significantly affect the trading behavior of the traders.Originality/valueThe authors contribute to the existing literature by exploring how the novel social interaction characteristics of online trading impact trading activity by giving rise to a new dimension of overconfidence. In addition, the authors evidence that the different frameworks of the platforms motivate heterogenous behavioral responses by the signalers. Finally, the authors refine existing studies by applying a distinct methodology for modeling overconfidence.

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“…At this point it should be noted that not any trade in markets implies negative correlation of risk. Depending on their portfolio, market participants can swap different assets to reduce risk for both (Gortner and van der Weele, 2015). In our setting, however, this is not possible.…”

Section: Discussionmentioning

confidence: 99%

Do markets encourage risk-seeking behaviour?

Mengel

Peeters

2020

The European Journal of Finance

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Peer effects and risk sharing in experimental asset markets

Cited by 16 publications

References 47 publications

Copy Trading

Copy Trading

Trading activity on social trading platforms – a behavioral approach*

Do markets encourage risk-seeking behaviour?

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