Friday, Jan. 5, 2018 2:30 PM - 4:30 PM
- Chair: Bruce Carlin, University of California-Los Angeles
The Impact of Internet Postings on Individual Investors
AbstractMany people share investment ideas online. This study investigates how investment-related Internet postings influence the behavior of those who read them. We use unique data from a social trading platform that allow us to observe the trading behavior of those who post comments – the traders – as well as the trading behavior of those who potentially act on comments – the followers. There is strong evidence that comments encourage followers to replicate investment decisions of traders. However, postings do not contain value-relevant information, suggesting that personal sentiment and biases drive followers’ reactions to the postings. Comments by traders who appear financially sophisticated are most influential, while followers that tend to be financially unsophisticated are most likely to trade on comments.
Long Run Growth of Financial Technology
AbstractIn most sectors, technological progress boosts efficiency. But financial technology and the associated data-intensive trading strategies have been blamed for market inefficiency. A key cause for concern is that better technology might induce traders to extract other's information from order flow data mining, rather than produce information themselves. Defenders of these new trading strategies argue that they provide liquidity by identifying uninformed orders and taking the other side of their trades. We adopt the lens of long-run growth to understand how improvements in financial technology shape information choices, trading strategies and market efficiency, as measured by price informativeness and market liquidity. Our findings cast doubt on common wisdom. While extracting information from order flow can improve the informativeness of prices, neither strategy markedly improves market liquidity. Thus, long-run growth of financial technology can reconcile two seemingly contradictory trends in asset markets: the increase in price informativeness and the stagnation of market liquidity.
- G0 - General