Facebook Finance: How Social Interaction Propagates Active Investing

Abstract

We present empirical evidence of the propagation of active investment strategies within a network of retail traders. Using a new, proprietary database drawn from a Facebook-style social network for individual investors, we verify the assumptions behind Han and Hirshleifer (wp, 2012). In their model, the higher variance strategies of active investors offer more opportunities to broadcast extreme positive returns. Traders are susceptible to these communications and disproportionately adopt active strategies. Within our network, the willingness of traders to contact others is increasing in their short-term returns. Trading intensity is increasing in the performance of those from whom they receive communications.

Keywords: FX trading, leveraged trading, networks in finance

JEL Classification: F31, G11, G14