Does social communication make investors stay in the market?

Xiaochuan TONG; Alex PREDA

doi:10.1093/ser/mwad065

Does social communication make investors stay in the market?

Xiaochuan TONG^*
, Alex PREDA

^*Corresponding author for this work

Department of Sociology and Social Policy

Research output: Journal Publications › Journal Article (refereed) › peer-review

3 Citations (Scopus)

Abstract

The role of online discussions in rallying investors has been highlighted by the GameStop frenzy of 2021. We know little, however, about the effect of online discussions on investor survivorship. Previous studies have emphasized the role of communication with respect to market entry, but not with respect to market survival. Survivorship studies, in turn, have largely focused on the role of financial factors in the investors’ decision to quit trading, but have not investigated so far how social interactions and communication impact the decision to quit or stay. Using a dataset covering 1.1 million observations for 4,731 traders over 18 months, we examine the role of online discussions in traders’ decisions to stay in the market. We find that traders who actively engage in them tend to be 16 per cent to 30 per cent less likely to quit trading. We identify a positive Granger-causal relationship between online discussions and the probability of survival. Our results are robust to alternative measures of communication and different sets of control variables. Based on this evidence, we draw attention to the necessity of studying the nexus between finance and social media as an important component of platform capitalism.

Original language	English
Pages (from-to)	1865-1890
Number of pages	26
Journal	Socio-Economic Review
Volume	22
Issue number	4
Early online date	29 Nov 2023
DOIs	https://doi.org/10.1093/ser/mwad065
Publication status	Published - Oct 2024

Bibliographical note

We thank the editor in charge, Ken-Hou Lin, and two anonymous reviewers for valuable comments and constructive suggestions. We are grateful for suggestions from Andrew McFaull and Raymond H.Y. So at King's College London, Ian Marsh and Constantinos Antoniou at Bayes Business School and Warwick Business School, respectively. This article has been presented at the Society for the Advancement of Socio Economics (SASE) Annual Meeting, New York City; the Social Finance and Financial Technology Conference, the University of Edinburgh; the London Judgement and Decision-Making Seminar, University College London, and the King's Business School Accounting & Financial Management Seminar, King's College London. We thank the participants for their constructive suggestions.

Publisher Copyright:
© The Author(s) 2023.

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

Keywords

communication
retail traders
social interactions
social trading platforms
survival analysis
trader behavior

Access to Document

10.1093/ser/mwad065Licence: Other

Cite this

@article{24dde5efbf8e432b864f687a58f8ffcf,

title = "Does social communication make investors stay in the market?",

abstract = "The role of online discussions in rallying investors has been highlighted by the GameStop frenzy of 2021. We know little, however, about the effect of online discussions on investor survivorship. Previous studies have emphasized the role of communication with respect to market entry, but not with respect to market survival. Survivorship studies, in turn, have largely focused on the role of financial factors in the investors{\textquoteright} decision to quit trading, but have not investigated so far how social interactions and communication impact the decision to quit or stay. Using a dataset covering 1.1 million observations for 4,731 traders over 18 months, we examine the role of online discussions in traders{\textquoteright} decisions to stay in the market. We find that traders who actively engage in them tend to be 16 per cent to 30 per cent less likely to quit trading. We identify a positive Granger-causal relationship between online discussions and the probability of survival. Our results are robust to alternative measures of communication and different sets of control variables. Based on this evidence, we draw attention to the necessity of studying the nexus between finance and social media as an important component of platform capitalism.",

keywords = "communication, retail traders, social interactions, social trading platforms, survival analysis, trader behavior",

author = "Xiaochuan TONG and Alex PREDA",

note = "We thank the editor in charge, Ken-Hou Lin, and two anonymous reviewers for valuable comments and constructive suggestions. We are grateful for suggestions from Andrew McFaull and Raymond H.Y. So at King's College London, Ian Marsh and Constantinos Antoniou at Bayes Business School and Warwick Business School, respectively. This article has been presented at the Society for the Advancement of Socio Economics (SASE) Annual Meeting, New York City; the Social Finance and Financial Technology Conference, the University of Edinburgh; the London Judgement and Decision-Making Seminar, University College London, and the King's Business School Accounting \& Financial Management Seminar, King's College London. We thank the participants for their constructive suggestions. Publisher Copyright: {\textcopyright} The Author(s) 2023.",

year = "2024",

month = oct,

doi = "10.1093/ser/mwad065",

language = "English",

volume = "22",

pages = "1865--1890",

journal = "Socio-Economic Review",

issn = "1475-1461",