Biased Information Transmission in Investor Social Networks: Evidence From Professional Traders
56 Pages Posted: 14 Dec 2021 Last revised: 31 Jan 2022
Date Written: September 27, 2021
Using instant message communications and trading records of professional traders, we directly measure how investment information propagates through traders’ social networks and its effects on their trading decisions and performance. We find traders are more likely to mention stocks with gains over losses, especially with their strong ties. The bias is stronger when the sender’s past returns are low and for closed positions. However, information about losses has stronger effects on the recipient’s trading decisions, suggesting that the initial bias may not necessarily imply wider propagation of gain information. Receiving a message about a stock is associated with higher abnormal returns.
Keywords: social transmission bias, investor social network
JEL Classification: G02, G11, G14
Suggested Citation: Suggested Citation