Social Transmission Bias: Evidence from an Online Investor Platform

Abstract

Using data from a Twitter-like investor social platform, we document evidence consistent with self-enhancing transmission bias. We find investors are more likely to post about their better-performing stocks. Their followers are more likely to buy the posted stocks than others, and postings’ effect on follow-up purchases is related to postings’ perceived credibility. The performance-postings relationship is stronger among more volatile stocks and the relationship between postings and follow-up purchases is stronger among stocks with higher recent returns, shedding light on the spread of high-variance and extrapolative strategies. We also document that the social network features influential nodes.

Keywords: social network; self-enhancing transmission bias; social trading platform

JEL Classification: D91, G41