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Working Papers, Department of Economics, Rutgers University >
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http://hdl.handle.net/10419/31283
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| Title: | | Is talk cheap online: strategic interaction in a stock trading chat room  |
| 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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