Benefits from social trading? Empirical evidence for certificates on wikifolios

doi:10.1016/j.irfa.2016.05.007

International Review of Financial Analysis

Volume 46, July 2016, Pages 202-210

https://doi.org/10.1016/j.irfa.2016.05.007 Get rights and content

Abstract

Social trading describes the idea that signal providers make their investment decisions available to other investors who follow them. The performance of social trading has hardly been in the focus of research so far. We analyze the performance of 1084 wikifolio certificates used in social trading and issued in 2012 and 2013. We apply factor models to analyze these certificates' returns and alphas relative to benchmark indexes. We find that, on average, wikifolios do not outperform the market. However, wikifolios with geographical focus provide better performance than those without. Furthermore, the best performing wikifolios earn significant short-term excess returns.

Section snippets

Data

We use a unique dataset on wikifolios that covers the period from the beginning of 2012 to the end of 2014. Data are hand-collected from the website wikifolio.com and include wikifolios' daily prices, performance fee, and labels⁷ provided by wikifolio.com. Wikifolio.com defined standardized rules for each label. All wikifolios are checked on a daily

Returns and alphas

First, we analyze monthly returns and alphas for the entire sample including 1084 wikifolios. Exhibit 4 presents mean values, standard deviations, and the first, fifth and ninth percentile of the distribution of wikifolios' monthly returns and their alphas based on the one-, three-, and four-factor model. To be able to apply the global benchmark, we translate all wikifolio prices to USD. The mean monthly return is a positive .09%. However, the corresponding t-test indicates that this mean

Conclusions

We analyze the performance of 1084 wikifolio certificates that have been issued during the period from 2012 to November 2013. Specifically, we estimate wikifolio returns and their alphas relative to a benchmark market index using the one-factor (Sharpe (1964); Lintner (1965)), the three-factor (Fama and French, 1992, Fama and French, 1993, the four-factor (Carhart, 1997) and the five-factor models (Fama & French, 2015). Our results show that, on average, wikifolios do not outperform the market.

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Benefits from social trading? Empirical evidence for certificates on wikifolios

Abstract

Section snippets

Data

Returns and alphas

Conclusions

Home-field advantage or a matter of ambiguity aversion? Local bias among German individual investors

European Journal of Finance

Trading is hazardous to your wealth: The common stock investment performance of individual investors

Journal of Finance

The Behavior of Individual Investors

The cross-section of speculator skill: Evidence from day trading

Journal of Financial Markets March

Measuring skill in the mutual fund industry

Journal of Financial Economics

Short-term persistence in mutual fund performance

Review of Financial Studies

Another look at mutual fund tournaments

Journal of Financial and Quantitative Analysis

On persistence in mutual fund performance

Journal of Finance

Can Individual Investors Beat the Market?

Star power: The effect of morningstar ratings on mutual fund flows

Journal of Financial and Quantitative Analysis

A Primer on Social Trading Networks – Institutional Aspects and Empirical Evidence