Does a scopic regime erode the disposition effect? Evidence from a social trading platform

Roland GEMAYEL*, Alex PREDA

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

20 Citations (Scopus)

Abstract

A scopic regime constitutes a state of permanent reciprocal observation and scrutiny among participants. We investigate whether this environment reduces the disposition effect among retail traders as they are constantly scrutinized by others, thus driving them to realize and limit their losses. We use two anonymous data sets, the first from a popular social trading platform (STP) governed by a scopic regime, and the second from a traditional foreign exchange broker. STPs allow participants to interact and copy each other's trades using mirror trading, thus implicitly creating two groups; trade leaders who execute unique trades to build their performance record, and copiers who allocate funds to be managed by the former. We find ample evidence of a weaker disposition effect among trade leaders in the scopic environment compared to traders in a traditional setting. Our findings suggest that a state of constant observation and scrutiny erodes the disposition effect as individuals become more self-conscious of their actions and limit their losses to avoid tarnishing their public trading record.

Original languageEnglish
Pages (from-to)175-190
Number of pages16
JournalJournal of Economic Behavior and Organization
Volume154
Early online date1 Sept 2018
DOIs
Publication statusPublished - Oct 2018
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2018 Elsevier B.V.

Keywords

  • Behavioral bias
  • Disposition effect
  • Foreign exchange
  • Retail trading
  • Scopic regime
  • Social trading

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