Isabella Kooij, University of Zurich Department of Banking and Finance will give a presentation via Zoom in this week’s Social, Economic, and Decision Psychology research seminar (Thursday 6 May).

Social Trading – Skill, performance and trading behavior

Using data from the social trading platform Wikifolio, we analyze the performance, characteristics and risk-return profile of professional and non-professional traders managing virtual portfolios. In line with the literature traders are not able to earn significant positive returns. Portfolios earning positive returns before they become investable for other users mostly cannot maintain their performance afterwards. In line with findings from the mutual fund industry, persistence in performance is generally low. Supporting previous findings on social trading, we find that risk and return of portfolios are not generally positively correlated. Trader and trading characteristics such as high confidence, high turnover and low diversification tend to negatively influence portfolio returns. Social trading platforms allow their users to exchange information and trade real world securities in an online setup. Some users are thereby invested with actual money, while others use it as a learning opportunity.