The impact of peer returns in social trading

This paper studies the impact of peers’ performance on social traders’ trading behavior. We analyze a large sample of trading records from a social trading brokerage service that allows its investors to interact with their peers in a social-media-like setting. We investigate how individuals’ trading activities change with respect to the outcomes of their peers in the network. We show that investors’ trading activities increase in their peers’ trading performance. As a result, the trading performance decreases, and the volatility of returns increases. We exploit plausibly unexpected performance shocks to address the endogeneity concern inherent in the analysis of peer effects.