The Effects of Social-Based Signals on Investment Decisions in Copy Trading

Abstract

In this study, we examine the importance and effects of social-based signals, i.e., signals generated by the community, when choosing a trader to copy in a mock-up social trading platform. Although the studies examining the effects of social influence in choosing a trader to copy and herding point toward the importance of social influence, these works do not evaluate how related signals in different constellations with other signals affect the decision-making of copying. The results of a two-alternative forced-choice experiment in which subjects made 18 investment decisions systematically show the importance of social-based signals in the selection of traders judged worth copying, i.e., their potential to influence investment decisions and the general preference toward positive social profiles.

Keywords: Social Trading, Copy trading, Social-based signals, Investing, Forced-choice experiment