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Copy Trading

Apesteguia, Jose ; Oechssler, Jörg ; Weidenholzer, Simon

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Abstract

Copy trading allows traders in social networks to receive information on the success of other agents in financial markets and to directly copy their trades. Internet platforms like eToro, ZuluTrade, and Tradeo have attracted millions of users in recent years. The present paper studies the implications of copy trading for the risk taking of investors. Implementing an experimental financial asset market, we show that providing information on the success of others leads to a significant increase in risk taking of subjects. This increase in risk taking is even larger when subjects are provided with the option to directly copy others. We conclude that copy trading reduces ex-ante welfare, and leads to excessive risk taking.

Item Type: Working paper
Series Name: Discussion Paper Series
Volume: 0649
Place of Publication: Heidelberg
Date Deposited: 29 Jun 2018 09:26
Date: 27 June 2018
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Controlled Keywords: Copy trading, Financial markets, Social networks, Imitation, Experiment
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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