Relying on others' investment skills in social trading networks

Authors: Julia Kapraun (Goethe University) and Matthias Pelster (University Paderborn)

Title: Relying on others' investment skills in social trading networks

Abstract: This paper provides a detailed study of new forms of investment advisory and investment delegation introduced through social trading networks. Our results on the formation and termination of leader-follower relationships indicate that these are almost exclusively driven by past performance. We further demonstrate that, on social trading platforms, past performance and the centrality of a trader contain relevant information regarding the skill level of the trader, providing, thus, a clear decision guidance for advisor selection.