Experts Online: An Analysis of Trading Activity in a Public Internet Chat Room

32 Pages Posted: 9 Apr 2008 Last revised: 3 Aug 2014

See all articles by Bruce Mizrach

Bruce Mizrach

Rutgers University, Department of Economics

Susan Weerts

Rutgers, The State University of New Jersey - Department of Economics

Date Written: February 2, 2009

Abstract

We analyze the trading activity in an Internet chat room over a four-year period. The data set contains nearly 9,000 trades from 676 traders. We find these traders are more skilled than retail investors analyzed in other studies. 55% make profits after transaction costs, and they have statistically significant alphas of 0.17% per day after controlling for the Fama-French factors and momentum. Traders hold their winners 25% longer than their losers. 42% trade both long and short, with equal success rates, and almost double the profit per trade when short. The estimates show a strong influence from other traders, with a buy (sell) order 40.7% more likely to be of the same sign if there has been a recent post. Traders improve their skill over time, earning an extra $189 per month for each year of trading experience. They also gain expertise in trading particular stocks. Traders who raise their Herfindahl index by 0.1 raise their profitability by $46 per trade.

Keywords: behavioral finance, day trading, familiarity bias, disposition effect, experts

JEL Classification: G14, G20

Suggested Citation

Mizrach, Bruce and Weerts, Susan, Experts Online: An Analysis of Trading Activity in a Public Internet Chat Room (February 2, 2009). Journal of Economic Behavior and Organization, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1118022 or http://dx.doi.org/10.2139/ssrn.1118022

Bruce Mizrach (Contact Author)

Rutgers University, Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States
(848) 932-8636 (Phone)
(732) 932-7416 (Fax)

HOME PAGE: http://snde.rutgers.edu/

Susan Weerts

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

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