I'll Have What S/he's Having: A Case Study of a Social Trading Network

Abstract

Opinion leaders of an investment network can have a significant impact on capital markets because their investment decisions are adopted by their peers and trigger large trading cascades, increasing herding behavior and comovement among stock returns. This paper analyzes the interaction-based relations of traders from a large social trading platform and identifies the driving forces and the opinion leaders within a large online trading network as the nodes with the highest centrality and the highest force of infection, respectively.
Relying on recent insights from epidemiological research, I maintain that centrality identifies the most central traders in the network, while the expected force quantifies the most influential traders and their spreading power. I study the behavior and characteristics that set central and influential traders apart from other traders. The ability to identify focal points and their trading behavior within a trading network is important for investors, investment advisers, and policy makers.

Keywords: Online trading; investment advice; network modeling; Expected Force; herding.

JEL Classification: G11, G19, G23, G29, D14.