Social Trading, Communication, and Networks

Social trading is an emerging market in the sharing economy, allowing inexperienced investors (followers) to automatically follow the trades of experts (leaders) in real time. We use a separable temporal exponential random graph model to analyze the formation and dissolution of links in a large social trading network. In contrast to traditional social networks, social trading networks are characterized by the rapid dissolution of links, thereby increasing the importance of studying network dissolution. We investigate how social communication, along with financial performance and demographics, affects dynamic network evolution and address the existing dependence in the leader-follower links. The determinants of link formation and dissolution are asymmetric. Different types of social communication, such as posts and comments, have different implications for link formation and dissolution. Our results show that financial performance and demographic characteristics also become important determinants of link formation. However, once a link is formed, followers focus mainly on financial performance, in addition to social communication, and not on demographic characteristics. Thus, our findings have important implications for both investors and social trading platforms.

History: Ram Gopal, Senior Editor; Martin Bichler, Associate Editor.

Funding: M. Pelster gratefully acknowledges financial support from the Deutsche Forschungsgemeinschaft [Individual Research Grant 434732045]. Y. Tan acknowledges financial support from the National Natural Science Foundation of China [Grant 71729001].

Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2021.0143.