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When Trading Becomes Social: How Social Trading Platforms Affect the Disposition Effect

2022 | International Conference on Information Systems | Citations: 0
Authors: Jabr, Wael; Rai, Arun

Abstract: Social trading platforms have, over the last decade or so, been gaining a stron ... Expand

Abstract: Social trading platforms have, over the last decade or so, been gaining a strong foothold in individual investment markets. Users on these platforms can observe ("view") traders' detailed transactions over time. They can also ''follow'' anyone of those traders, just like with other social media platforms, investing their money in accordance with the strategies of their trader of choice. We study whether and how the disposition effect bias of individual traders is affected by two social features of the platform, "Views" and "Followers." We find a differentiated impact on this bias from those two social features, which is conditional on the level of market turbulence. We attribute this to how traders assess the signal originating from Views and Followers in relation to how committal it is. Collapse

Semantic filters: disposition effect

Topics: social trading platform decision making electronic finance logistics management financial performance

Methods: theory development Z-test survival analysis cluster analysis hazard function

Theories: disposition effect behavioral economics
Disposed of Bitcoin? Using the Disposition Effect to Understand Financial News Sentiment and Bitcoin Returns

2019 | Americas Conference on Information Systems | Citations: 1
Authors: Cao, Mengfan; Rhue, Lauren

Abstract: Since its inception, bitcoin has occupied a prominent role in the cryptocurrenc ... Expand

Abstract: Since its inception, bitcoin has occupied a prominent role in the cryptocurrency market. As bitcoin received increased attention, researchers have examined popular sentiment as a predictor of bitcoin price fluctuation. However, the popular sentiment may differ from the sentiment of financial professionals. We ask whether the presence and news sentiment from prestigious business journals would affect the bitcoin return. We collected the daily bitcoin price data from 01/01/2017 to 03/31/2018 from the third-party cryptocurrency exchange website CoinMarketCap. The headlines of news mentioning bitcoin on Wall Street Journal and Financial Times are collected from LexisNexis Database. We calculated the sentiment embedded in the news headlines using a bag-of-words model and a dictionary-based approach. We estimate a regression of financial news sentiment on bitcoin daily return. Our main findings are that positive sentiment contributes significantly negatively to bitcoin return on the same day; negative sentiment day contributes positively, although not significantly. We interpret these findings through the disposition effect that, investors tend to sell high-performed assets and hold underperformed assets. The findings extend our understanding of disposition effect to the cryptocurrency market, and we plan to further examine if there is evidence of the disposition effect. Collapse

Semantic filters: disposition effect

Topics: Bitcoin cryptocurrency website social media

Methods: sentiment analysis longitudinal research time series analysis LexisNexis ordinary least square

Theories: disposition effect behavioral economics
Effects of transparency: analyzing social biases on trader performance in social trading
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2018 | Journal of Information Technology | Citations: 11
Authors: Glaser, Florian; Risius, Marten

Abstract: Social Trading platforms combine the trading functionalities of classical online ... Expand

Abstract: 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. These novel insights propose a link between principal-agent theory and the disposition effect induced by transparency mechanisms. We extend the literature on trader-investor interaction channels in social trading networks. The results obtained in a social network environment are of high relevance for regulators who have a strong focus on customer protection and financial services regulation. They also provide guidelines for platform designers, traders, investors and social trading platform operators. Collapse

Semantic filters: disposition effect

Topics: social trading platform moral hazard decision making electronic trading social influence

Methods: longitudinal research autocorrelation analysis econometric modeling regression analysis method statistical hypothesis test

Theories: disposition effect behavioral economics agency theory
Beware of Performance Indicators: How Visual Cues Increase the Disposition Effect
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2015 | Business & Information Systems Engineering | Citations: 0
Authors: Kranz, Tobias T.; Teschner, Florian; Weinhardt, Christof

Abstract: Online trading interfaces are important instruments for retail investors. For so ... Expand

Abstract: Online trading interfaces are important instruments for retail investors. For sound reasons, regulators obligate online brokers to inform customers about certain trade related risks. Research has shown that different behavioral biases can decrease traders’ performance and hence lead to pecuniary losses. The disposition to hold losing stocks too long and sell winning stocks too early (‘disposition effect’) is such a deviation from rational behavior. The disposition effect is analyzed for the prediction market ‘Kurspiloten’ which predicts selected stock prices and counts nearly 2000 active traders and more than 200,000 orders. We show that the disposition effect can be aggravated by visual feedback on a trader’s performance via colored trend direction arrows and percentages. However, we ﬁnd no evidence that such an interface modiﬁcation leads to higher activity. Furthermore, we can not conﬁrm that creating awareness of the disposition effect with textual information is suited to decreasing its strength. Collapse

Semantic filters: disposition effect

Topics: usability user interface electronic market human computer interaction

Methods: parametric test two sample t-test with equal variance experimental group experiment Student's t-test

Theories: disposition effect

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Found 4 articles

When Trading Becomes Social: How Social Trading Platforms Affect the Disposition Effect

Disposed of Bitcoin? Using the Disposition Effect to Understand Financial News Sentiment and Bitcoin Returns

Effects of transparency: analyzing social biases on trader performance in social trading

Beware of Performance Indicators: How Visual Cues Increase the Disposition Effect