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Title:Is talk cheap online: strategic interaction in a stock trading chat room PDF Logo
Authors:Lu, Jie
Mizrach, Bruce
Issue Date:2008
Series/Report no.:Working papers // Department of Economics, Rutgers, the State University of New Jersey 2007,01
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 a describe an 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) unskillful traders post more often than skillful traders; (2) skillful traders will not follow unskillful traders in stock picking; (3) The optimal strategy for unskillful traders is to follow skillful traders in stock picking. We test and affirm all three predictions using a unique data set of chat room logs from the Activetrader Financial Chat Room.
Subjects:Chat room
strategic information
JEL:G14
Document Type:Working Paper
Appears in Collections:Working Papers, Department of Economics, Rutgers University

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