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Experts Online: An Analysis of Trading Activity in a Public Internet Chat Room

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Author Info

  • Bruce Mizrach

    () (Rutgers University)

  • Susan Weerts

    () (Rutgers University)

Abstract

We analyze the trading activity in an Internet chat room with approximately 1,300 participants. Traders make posts in real time about their activities. We find these traders are more skilled than retail investors analyzed in other studies. 55% make profits after transaction costs, and they earn $153 per trade. Traders hold their winners 25% longer than their losers. They have statistically significant alphas of 0.41% per day after controlling for the Fama-French factors and momentum. 38% of profits persist in the next year. Traders improve their skill over time, earning an extra $189 per month for each year of trading experience. They also gain expertise in trading particular stocks. Traders who raise their Herfindahl index by 0.1 raise their profitability by $46 per trade. 42% trade both long and short, with equal success rates, and almost double the profit per trade when short.

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200412.

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Length: 20 pages
Date of creation: 20 May 2004
Date of revision:
Publication status: Published in Journal of Economic Behavior and Organization 70, 2009, 266-81.
Handle: RePEc:rut:rutres:200412

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Keywords: behavioral finance; familiarity bias; day trading; experts; disposition effect;

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References

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  8. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," NBER Working Papers 8143, National Bureau of Economic Research, Inc.
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Cited by:
  1. Blanchard, michel & Bernard, philippe, 2011. "The performance of amateur traders on a public internet site: a case of a stock-exchange contest," MPRA Paper 34304, University Library of Munich, Germany.
  2. David Goldbaum, 2009. "Follow the Leader: Steady State Analysis of a Dynamic Social Network," Working Paper Series 158, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  3. Antonios Siganos, 2010. "Can small investors exploit the momentum effect?," Financial Markets and Portfolio Management, Springer, vol. 24(2), pages 171-192, June.

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