Social Transmission Bias: Evidence from an Online Investor Platform

Abstract

Using data from a Twitter-like investor social platform, we document evidence consistent with the self-enhancing transmission bias. We find that investors are more likely to post about their better-performing stocks. Their followers are more likely to buy the posted stocks than the non-posted stocks and the effect of postings on follow-up purchases is related to postings’ perceived credibility. Both the relationship between performance and postings and the relationship between postings and follow-up purchases vary with stock characteristics in a way that facilitates the spread of high-variance, high-skewness, 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