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

Abstract

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

N. Lane, Jacqueline and Lim, Sonya S. and Uzzi, Brian, Biased Information Transmission in Investor Social Networks: Evidence From Professional Traders (September 27, 2021). Available at SSRN: https://ssrn.com/abstract=3956040 or http://dx.doi.org/10.2139/ssrn.3956040

Jacqueline N. Lane

Harvard Business School ( email )

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

Sonya S. Lim (Contact Author)

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States

HOME PAGE: http://sites.google.com/site/sonyalim/

Brian Uzzi

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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