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Portfolio Rankings on Social Trading Platforms in Uncertain Times

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Enterprise Applications, Markets and Services in the Finance Industry (FinanceCom 2020)

Part of the book series: Lecture Notes in Business Information Processing ((LNBIP,volume 401))

Abstract

On social trading platforms, anyone can create investment portfolios and share them with others. This leads to an abundance of portfolio strategies available to investors. However, this variety comes with the drawback of high search costs for investors looking for the most promising portfolios to invest in. Platform operators provide a ranking on these portfolios, thus making it easier for investors and reducing search costs. In our study, we analyze the value of this ranking regarding various aspects and especially against the background of its protective function in turbulent market phases. For this purpose, we look at the stock market crash in connection with the Covid-19 pandemic. Our results show (i) that investors on social trading platforms are making use of the ranking, (ii) that the ranking offers value for these investors, and (iii) protects them from extreme losses in downward periods. The ranking we analyzed rather identifies portfolios with a more successful market timing than those with an effective stock selection. We further show that changes in the ranking tend to contribute to procyclical behavior (iv). Finally, we provide preliminary evidence that indicates rankings’ influence on the behavior of traders.

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Notes

  1. 1.

    https://www.etoro.com.

  2. 2.

    https://www.zulutrade.com.

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Authors and Affiliations

  1. University of Goettingen, Goettingen, Germany

    Steffen Bankamp & Jan Muntermann

Authors
  1. Steffen Bankamp
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  2. Jan Muntermann
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Corresponding author

Correspondence to Steffen Bankamp .

Editor information

Editors and Affiliations

  1. Goethe University Frankfurt, Frankfurt, Germany

    Benjamin Clapham

  2. Goethe University Frankfurt, Frankfurt, Germany

    Jascha-Alexander Koch

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Bankamp, S., Muntermann, J. (2020). Portfolio Rankings on Social Trading Platforms in Uncertain Times. In: Clapham, B., Koch, JA. (eds) Enterprise Applications, Markets and Services in the Finance Industry. FinanceCom 2020. Lecture Notes in Business Information Processing, vol 401. Springer, Cham. https://doi.org/10.1007/978-3-030-64466-6_5

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  • DOI: https://doi.org/10.1007/978-3-030-64466-6_5

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-030-64465-9

  • Online ISBN: 978-3-030-64466-6

  • eBook Packages: Computer ScienceComputer Science (R0)

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