Strategic Interaction in A Stock Trading Chat Room

Jie Lu and Bruce Mizrach

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: We consider a model of an internet chat room with free entry but secure identity. Traders exchange messages in real time of both a fundamental and non-fundamental nature. We explore conditions under which traders post truthful information and make trading decisions. We also establish a symmetric Bayesian Nash equilibrium in which momentum traders profit from their exposure to informed traders in the chat room. The model generates a number of empirical predictions: (1) the non-skillful traders follow the skillful traders; (2) the more skillful traders are more frequently followed by others; (3) the non-skillful traders benefit from following. We test and confirm all three predictions using a data set of chat room logs from the Activetrader Financial Chat Room.

Keywords: chat room; strategic information; individual traders; behavioral finance (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013-07-16
New Economics Papers: this item is included in nep-cta, nep-fmk and nep-mst
References: Add references at CitEc
Citations:

Downloads: (external link)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1746464

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:201317

Access Statistics for this paper

More papers in Departmental Working Papers from Rutgers University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().