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Experts Online: An Analysis of Trading Activity in a Public Internet Chat Room

Bruce Mizrach () and Susan Weerts ()
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Susan Weerts: Rutgers University

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: We analyze the trading activity in an Internet chat room with approximately 1,300 participants. Traders make posts in real time about their activities. We find these traders are more skilled than retail investors analyzed in other studies. 55% make profits after transaction costs, and they earn $153 per trade. Traders hold their winners 25% longer than their losers. They have statistically significant alphas of 0.41% per day after controlling for the Fama-French factors and momentum. 38% of profits persist in the next year. Traders improve their skill over time, earning an extra $189 per month for each year of trading experience. They also gain expertise in trading particular stocks. Traders who raise their Herfindahl index by 0.1 raise their profitability by $46 per trade. 42% trade both long and short, with equal success rates, and almost double the profit per trade when short.

Keywords: behavioral finance; familiarity bias; day trading; experts; disposition effect (search for similar items in EconPapers)
JEL-codes: G14 G20 (search for similar items in EconPapers)
Date: 2004-05-20
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Published in Journal of Economic Behavior and Organization 70, 2009, 266-81.

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