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What Drives Investment Flows Into Social Trading Portfolios?

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  • Florian Röder
  • Andreas Walter

Abstract

We investigate investment flows into more than 5,300 social trading portfolios that are issued as structured products and are tradable at a regular exchange. We find that investment flows chase past performance. However, in contrast to mutual fund flows, the flow–performance relation exists nearly exclusively for the best performing social trading portfolios. Flows follow raw returns rather than factor model alphas. Additionally, flows are highly persistent. Finally, social trading portfolios with higher visibility on the web page of the social trading platform as well as traders communicating actively to investors via public comments attract higher inflows.

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  • Florian Röder & Andreas Walter, 2019. "What Drives Investment Flows Into Social Trading Portfolios?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 42(2), pages 383-411, July.
    • Handle: RePEc:bla:jfnres:v:42:y:2019:i:2:p:383-411
    DOI: 10.1111/jfir.12174
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    1. Scheckenbach, Isabel & Wimmer, Maximilian & Dorfleitner, Gregor, 2021. "The higher you fly, the harder you try not to fall: An analysis of the risk taking behavior in social trading," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 239-259.
    2. Czaja, Daniel & Röder, Florian, 2020. "Self-attribution bias and overconfidence among nonprofessional traders," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 186-198.
    3. Andreas Oehler & Julian Schneider, 2023. "Social trading: do signal providers trigger gambling?," Review of Managerial Science, Springer, vol. 17(4), pages 1269-1331, May.
    4. Steiger, Sören & Pelster, Matthias, 2020. "Social interactions and asset pricing bubbles," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 503-522.
    5. Mingwen Yang & Zhiqiang (Eric) Zheng & Vijay Mookerjee, 2022. "How Much Is Financial Advice Worth? The Transparency-Revenue Tension in Social Trading," Management Science, INFORMS, vol. 68(7), pages 5252-5268, July.
    6. Riccardo Reith & Maximilian Fischer & Bettina Lis, 2020. "Explaining the intention to use social trading platforms: an empirical investigation," Journal of Business Economics, Springer, vol. 90(3), pages 427-460, April.
    7. Schneider, Julian & Oehler, Andreas, 2021. "Competition for visibility: When do (FX) signal providers employ lotteries?," International Review of Financial Analysis, Elsevier, vol. 78(C).
    8. Erdős, Sándor & Papp, Tamás & Vörös, Zsófia, 2022. "The effects of community-based signals on investment decisions in copy trading," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 97(C).

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