Social trading, communication, and networks

Abstract

Social trading is an emerging market in the sharing economy, allowing inexperienced investors (copiers) to automatically follow the trades of experts (leaders) in real time. We use a separable temporal exponential random graph model (STERGM) to analyze the link formation and dissolution of a large social trading network. In contrast to traditional social networks, social trading networks are characterized by a rapid dissolution of links, thereby increasing the importance of studying network dissolution. We investigate how social communication, along with financial performance and demographics, affects dynamic network evolution and address the existing dependence among copier-leader links. Our results show that social communication, financial performance, and demographic factors are important determinants of link formation. However, once a link is formed, copiers mainly focus on financial performance and communication but not on demographic factors. Thus, the determinants of link formation and dissolution are asymmetric. Different types of social communication, such as posts and comments, have different implications for link formation and dissolution. Our findings provide important implications for both investors and social trading platforms.

Keywords: Social Trading, Copy Trading, Social Communication, STERGM