 Social trading platforms vs. mutual funds: herding tendencies and portfolio risks*Peter Grundke and Gerrit Wittke The European Journal of Finance, 2025, vol. 31, issue 7, 827-849 Abstract: This paper compares herding behavior between mutual funds and social trading platforms, where retail investors manage others' money, and examines its implications for risk co-movements. Utilizing unique social trading data alongside mutual fund data, we find that social trading portfolio managers exhibit less herding than mutual fund managers according to a transaction-based herding measure. However, a market-based herding measure reveals no significant difference in herding behavior, highlighting a limitation in the robustness of the transaction-based approach. We discuss factors influencing herding behavior in the social trading environment, suggesting higher overconfidence in social trading as a key factor. From an investor perspective, herding behavior can align portfolios, increasing the likelihood of common crisis events. Although we do not find a statistically significant relationship between the degree of herding and the likelihood of joint crisis events, our findings indicate that social trading portfolios have a 5.63 percentage point lower likelihood of joint crisis events compared to mutual funds. Date: 2025 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:eurjfi:v:31:y:2025:i:7:p:827-849 Ordering information: This journal article can be ordered from DOI: 10.1080/1351847X.2024.2436904 Access Statistics for this article The European Journal of Finance is currently edited by Chris Adcock More articles in The European Journal of Finance from Taylor & Francis Journals |
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