Echo Chambers in Investment Discussion Boards

Proceedings of the 17th International AAAI Conference on Web and Social Media (ICWSM 2017)

11 Pages Posted: 10 Apr 2017

See all articles by Shiliang Tang

Shiliang Tang

University of California, Santa Barbara (UCSB)

Qingyun Liu

University of California, Santa Barbara (UCSB)

Megan McQueen

Yale University

Scott Counts

Microsoft Corporation

Apurv Jain

Harvard Business School; Microsoft Corporation - Microsoft Research - Redmond; Massachusetts Institute of Technology (MIT) - Finance Department

Heather Zheng

University of California, Santa Barbara (UCSB)

Ben Zhao

University of California, Santa Barbara (UCSB)

Date Written: March 29, 2017

Abstract

We examine the quality of information and communication in online investment discussion boards. We show that positivity bias and skewed risk/reward assessments, exacerbated by the insular nature of the community and its social structure, contribute to underperforming investment advice and unnecessary trading. Discussion post sentiment has negligible correlation with future stock market returns, but does have a positive correlation with trading volumes and volatility. Our trading simulations show that across different timeframes, this misinformation leads 50-70% of users to underperform the market average. We then examine social structure in communities, and show that the majority of market sentiment is produced by a small number of community leaders, and that many members actively resist negative sentiment, thus minimizing viewpoint diversity. To improve generated information content in online investment communities, we suggest designing to increase diversity of opinion, minimize friction around incorporating new information, and provide performance feedback for self-correction.

Keywords: Investment Discussion Boards, Trading Volume, Volatilility, Echo Chamber, Positivity Bias, Behavioral Finance, Active Trading, Information Content

Suggested Citation

Tang, Shiliang and Liu, Qingyun and McQueen, Megan and Counts, Scott and Jain, Apurv and Zheng, Heather and Zhao, Ben, Echo Chambers in Investment Discussion Boards (March 29, 2017). Proceedings of the 17th International AAAI Conference on Web and Social Media (ICWSM 2017) , Available at SSRN: https://ssrn.com/abstract=2943163 or http://dx.doi.org/10.2139/ssrn.2943163

Shiliang Tang

University of California, Santa Barbara (UCSB) ( email )

Santa Barbara, CA 93106
United States

Qingyun Liu

University of California, Santa Barbara (UCSB) ( email )

Santa Barbara, CA 93106
United States

Megan McQueen

Yale University ( email )

New Haven, CT 06520
United States

Scott Counts

Microsoft Corporation ( email )

One Microsoft Way
Redmond, WA 98052
United States

Apurv Jain (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Microsoft Corporation - Microsoft Research - Redmond ( email )

Building 99
Redmond, WA
United States

Massachusetts Institute of Technology (MIT) - Finance Department ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Heather Zheng

University of California, Santa Barbara (UCSB) ( email )

Santa Barbara, CA 93106
United States

Ben Zhao

University of California, Santa Barbara (UCSB) ( email )

Santa Barbara, CA 93106
United States

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