Social communication and FX retail trading

Abstract

My thesis is motivated by the novel concept social finance in the survey paper “Behavioral Finance” (Hirshleifer, 2015). The author Hirshleifer calls for a new era of behavioral research in finance, so-called social finance. This stream of research aims to extend traditional behavioral finance literature by considering the impact of the structure of social interactions, the spread and evolution of financial ideas, and social processes on financial outcomes. These social elements in finance impact the information transmission in financial markets, the decision-making of individual investors, as well as the subsequent trading behavior and asset prices. In three studies, I investigate retail traders’ (1) trading performance, (2) return synchronicity, and (3) survivorship in the foreign exchange (FX) market. I show that FX retail traders do not make money and do not possess skills. I also highlight the role of social communication in altering retail traders’ return patters and market persistence. This set of studies empirically supports the social finance theory by presenting evidence that social communication impacts retail traders’ behavior. This thesis adds to the limited literature, especially in the FX market, on retail trader behavior.

Date of Award	1 May 2021
Original language	English
Awarding Institution	King's College London
Supervisor	Alex Preda (Supervisor) & Andrew McFaull (Supervisor)