Does social media information affect individual investor disposition effect? Evidence from Xueqiu

TL;DR

This study investigates how social media information, especially negative content, influences individual investors' disposition effect, showing that social media can significantly reduce irrational trading behaviors.

Contribution

It provides empirical evidence that social media, particularly negative information, can mitigate the disposition effect among individual investors.

Findings

Social media information significantly reduces the disposition effect.

Negative social media information has a stronger impact on rationalizing investor behavior.

Factors like experience, region, and gender influence the effectiveness of social media in reducing biases.

Abstract

The irrational behavior of investors selling profitable assets too early while holding onto losing assets for too long is known as the disposition effect. Due to the development of the Internet, the information environment for individual investors has been greatly improved. As an important source of information for individual investors, whether social media can improve investors' behavioral biases and return to rational expectations is a question worth studying. Based on the post data and actual trading data of the social investment platform Xueqiu.com, this paper studies the impact of social media information on the disposition effect of individual investors. The research results show that social media information can significantly reduce the disposition effect. Furthermore, it is through negative information that social media information reduces the disposition effect. When presented with negative information, individual investors will gradually become more rational in adjusting their positions. At the individual level, factors such as investment experience, users followed, region, and gender can all influence the effectiveness of the information acquired by individual investors in reducing the disposition effect.