Facebook Finance: How Social Interaction Propagates Active Investing

70 Pages Posted: 18 Mar 2012 Last revised: 14 Dec 2012

See all articles by David Simon

David Simon

Brandeis University - International Business School

Rawley Heimer

Boston College - Department of Finance

Date Written: August 23, 2012

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

Suggested Citation

Simon, David and Heimer, Rawley, Facebook Finance: How Social Interaction Propagates Active Investing (August 23, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2021935 or http://dx.doi.org/10.2139/ssrn.2021935

David Simon (Contact Author)

Brandeis University - International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
United States

Rawley Heimer

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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