The role of herd-based dimension in the decision making of copy trading

Abstract

THE AIMS OF THE PAPER

The study intends to show why it is necessary to supplement the models of trust built between actors in the social trading network based on a dual division with a dimension based on imitative behavior. With the new theoretical concept, we would like to prove that in addition to the cognitive and emotional-based signals accepted in the literature, imitation-based signalling groups also have an impact on copying decision-making. According to our model, the strongest form of trust is realized with the coexistence of the three dimensions.

METHODOLOGY

In this study, we aim to present the literature related to the herd behaviour underlying our concept, as well as the characteristics of new social trading between investment platforms, by exploring the relevant theoretical literature. Following this, a new concept will be formulated to explain the trust that is being developed between the actors in social trading. At the end of the study, we present an experimental design created to demonstrate the validity of our model.

MOST IMPORTANT RESULTS

Studies related to social trading trace the development of trust that underlies the decision to copy back to cognitive and emotional signals. However, in the case of financial investments, the need to reduce uncertainty may persist even if data related to these two dimensions are available to all actors without restriction. Even in this ideal case, the information environment is asymmetric, as the reliability and authenticity of the data source, as well as the quality and relevance of the information, have to be judged by each decision-maker. One of the most effective ways to reduce uncertainty is for investors to monitor the decisions of other investors. This also applies to copying decisions in social trading, so we are adding a third new dimension to herd-based signalling to explain the development of trust that underpins copying decisions.

RECOMMENDATIONS

The examination of decisions to copy the portfolio of leaders in social trading should not be limited to the processing of individual signals sent by leaders, but should also be extended to signals sent by other actors in the community. In order to investigate this, we intend to present an experimental plan to investigate the role of the herd-based dimension in copying decision-making. Using a systematically designed experiment that mimics the characteristics of social trading, it can be demonstrated how copying decision-making situations in social trading are affected by each dimension.