Rawley Z. Heimer
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Social media and finance

How online social networks and social media shape what retail investors believe and how they trade.

Using myForexBook, a social trading platform that linked members’ messages to their brokerage accounts, this research shows that joining an investor social network nearly doubles a trader’s disposition effect, that traders respond to peers’ gains but ignore peers’ losses so active strategies spread despite low success rates, and that the same platform data can be used to evaluate regulation such as leverage limits. The findings bear directly on research using data from Stocktwits, Reddit (WallStreetBets), X (Twitter), eToro, and other investor social media.

Related terms: Stocktwits, Reddit and WallStreetBets, X (Twitter), social trading platforms, eToro, copy trading, myForexBook, investor social networks, online investor communities, finfluencers, social finance, peer effects, social transmission, word of mouth, investor sentiment, investor attention.

Published papers

  1. Peer Pressure: Social Interaction and the Disposition Effect

    Review of Financial Studies

    Social interaction amplifies investors’ biases: joining an investor social network nearly doubles a trader’s disposition effect, the tendency to sell winners and hold losers.

  2. Facebook Finance: How Social Interaction Propagates Active Investing

    With David Simon

    Federal Reserve Bank of Cleveland Working Paper 15-22

    Investors broadcast their successes and stay quiet about losses, so social networks spread active trading despite its low success rates; evidence from a social trading platform.

  3. Biased by Choice: How Financial Constraints Can Reduce Financial Mistakes

    With Alex Imas

    Review of Financial Studies

    Constraints can reduce financial mistakes: leverage limits improved traders’ performance by curbing the disposition effect, in retail trading data and in two experiments.

  4. Should Retail Investors’ Leverage Be Limited?

    With Alp Simsek

    Journal of Financial Economics

    Limiting retail investors’ access to leverage cut high-leverage traders’ losses by 40% without reducing market liquidity, based on the 2010 U.S. leverage cap in the retail forex market.

  5. Friends Do Let Friends Buy Stocks Actively

    Journal of Economic Behavior and Organization

    Sociable people are more likely to invest actively than passively, consistent with word of mouth spreading active strategies; evidence from the Consumer Expenditure Survey.

Other research topics