When Trading Becomes Social: How Social Trading Platforms Affect the Disposition Effect

Social trading platforms have, over the last decade or so, been gaining a strong foothold in individual investment markets. Users on these platforms can observe (“view”) traders' detailed transactions over time. They can also ''follow'' anyone of those traders, just like with other social media platforms, investing their money in accordance with the strategies of their trader of choice. We study whether and how the disposition effect bias of individual traders is affected by two social features of the platform, “Views” and “Followers.” We find a differentiated impact on this bias from those two social features, which is conditional on the level of market turbulence. We attribute this to how traders assess the signal originating from Views and Followers in relation to how committal it is.