Facebook Finance: How Social Interaction Propagates Active Investing
This paper shows how active investing strategies propagate through social connections in a network of retail traders, using a new database of social activity linked to individual-level trading records. A trader's good short-term performance causes them to contact others. A trader's activity increases when peers perform well and increase communication. We use the staggered entry of brokerages into partnerships with the social networking platform, which is a necessary precursor for traders to access the network, to argue these effects are causal. This pattern of communication supports active trading, even though the network reveals the low success rate of retail traders.
Heimer, Rawley Z., and David Simon. 2015. “Facebook Finance: How Social Interaction Propagates Active Investing” Federal Reserve Bank of Cleveland, Working Paper No. 15-22. https://doi.org/10.26509/frbc-wp-201522