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Copy Trading

Author

Listed:
  • Apesteguia, Jose
  • Oechssler, Jörg
  • Weidenholzer, Simon

Abstract

Copy trading allows traders in social networks to receive information on the success of other agents in financial markets and to directly copy their trades. Internet platforms like eToro, ZuluTrade, and Tradeo have attracted millions of users in recent years. The present paper studies the implications of copy trading for the risk taking of investors. Implementing an experimental financial asset market, we show that providing information on the success of others leads to a significant increase in risk taking of subjects. This increase in risk taking is even larger when subjects are provided with the option to directly copy others. We conclude that copy trading reduces ex-ante welfare, and leads to excessive risk taking.

Suggested Citation

  • Apesteguia, Jose & Oechssler, Jörg & Weidenholzer, Simon, 2018. "Copy Trading," Working Papers 0649, University of Heidelberg, Department of Economics.
    • Handle: RePEc:awi:wpaper:0649
    Note: This paper is part of http://archiv.ub.uni-heidelberg.de/volltextserver/view/schriftenreihen/sr-3.html
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    Other versions of this item:

    • Jose Apesteguia & Jörg Oechssler & Simon Weidenholzer, 2018. "Copy trading," Economics Working Papers 1615, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2019.
    • Jose Apesteguia & Jörg Oechssler & Simon Weidenholzer, 2018. "Copy Trading," Working Papers 1048, Barcelona School of Economics.

    References listed on IDEAS

    as
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    More about this item

    Keywords

    Copy trading; Financial markets; Social networks; Imitation; Experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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