Biased Information Transmission in Investor Social Networks: Evidence From Professional Traders

Abstract

Using instant message communications and trading records of professional traders, we directly measure how investment information propagates in traders’ social networks and how it affects their trading decisions and performance. Traders are more likely to mention stocks with gains over losses, especially with their strong ties with whom they communicate more frequently. The asymmetry is stronger when the sender’s past returns are low and for closed positions. However, recipients are more likely to incorporate information about losses into their subsequent trading decisions. Receiving a message about a stock, especially from a weak tie, is associated with higher abnormal returns.

Keywords: social transmission bias, investor social network

JEL Classification: G02, G11, G14